Randy scheiner, royce scheiner, cindy royce creations, inc and

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93 Civ. 0062 (RWS)
United States District Court For The Southern District Of New York
832 F. Supp. 687, 1993 U.S. Dist. Decision
September 13, 1993, Decided

For PLAINTIFFS: LAPIDUS & FRANKEL, P.A., Miami, FL, By: ROBERT P. FRANKEL, ESQ., Of Counsel. HEIN HAZELBERG, ESQ., New York, NY. MORVILLO, ABRAMOWITZ, GRAND, IASON & SILBERBERG, P.C., Attorneys for Defendants Derek Wallace, Brian Daniels, Paul Hunt, David Williams, Lloyd's Underwriters, White, Fleischner, Fino & Wade, Graham Miller, Inc., Shaun Coyne, Karl Alizade, City Safe, Inc. and John M. McNicholas, New York, NY, By: MICHAEL C. SILBERBERG, ESQ., Of Counsel. NOURSE & BOWLER Attorneys for Defendant Hartley Cooper Associates, Ltd., New York, NY.

{F. Supp. 689} OPINION
Sweet, D. J.
Defendants Derek Wallace, Brian Daniels, Paul Hunt, David Williams, Lloyd's Underwriters Subscribing to Policy Numbers ZJB8901346 251NM and ZJB900233 255M, ("Lloyd's"), White, Fleischner, Fino & Wade ("WFFW"), Holmes Protection of New York, Inc. ("Holmes"), Graham Miller, Inc. ("Miller"), Shaun Coyne, Karl Alizade, City Safe, Inc. ("City Safe") and Detective John M. McNicholas ("McNicholas"), (collectively the "Defendants") have moved for an order dismissing Plaintiffs Randy Scheiner's, Royce Scheiner's, Cindy Royce Creations, Inc.'s ("Cindy Royce"), and Maximus Creations Limited's ("Maximus"), ("collectively the "Plaintiffs") Complaint, pursuant to Rule 12(b), Fed. R. Civ. P., or granting summary judgment against Plaintiffs' claims, pursuant to Rule 56, Fed. R. Civ. P.
Defendant Hartley Cooper Associates, Limited ("Hartley Cooper") separately moved for an order granting summary judgment pursuant to Rule 56 Fed. R. Civ. P. or dismissing all claims for lack of pendant jurisdiction.
For the reasons set forth below, the Defendants' motions are granted in part and denied in part.
Plaintiff Cindy Royce is a New York corporation. Its principal office is in New York City and its primary business is manufacturing and selling jewelry.
Plaintiff Maximus is a New York corporation. Its principal office is in New York City and its primary business is manufacturing and selling jewelry.
Samuel Scheiner was and is Secretary Treasurer and fifty-percent shareholder of Cindy Royce and Secretary Treasurer and one-third owner of Maximus. Samuel Scheiner supervised the overall operations and finances of both Cindy Royce and Maximus.
Morton Gold was President and fifty-percent owner of Cindy Royce and Vice-President and one-third owner of Maximus. Gold supervised the jewelry manufacturing on the premises at 501 Madison Avenue.
Daniel Squillante was President and one-third owner of Maximus. Squillante supervised the overall operations of the Maximus line of jewelry.
Randy Scheiner is a New York citizen and resident residing in Cedarhurst, New York. He was a salesman for Maximus. He is the son of Samuel Scheiner and plaintiff Royce Scheiner.
Royce Scheiner is the wife of Samuel Scheiner.
Derek Wallace, Brian Daniels, Paul Hunt and David Williams are citizens of the United Kingdom, with their principal place of business in London. As Lloyd's underwriters, they subscribed to the insurance policies in this case.
{F. Supp. 690} WFFW, a law firm, is a general partnership organized and existing under the laws of the State of New York. Attorneys in WFFW are licensed to practice law in the State of New York. Dennis Wade is a partner in WFFW. Dennis Wade worked first as an Assistant District Attorney and second as Deputy Chief of the Rackets Bureau in the New York County District Attorney's Office.
Holmes is a corporation organized and existing under the laws of New York. Cindy Royce and Maximus contracted Holmes to provide security services.
Hartley Cooper, an insurance brokerage, is an English Corporation with its principal place of business in England. Hartley Cooper acted as a "placing broker" by placing primary and excess insurance policies for Cindy Royce and Maximus on the London market.
Levmore-Finch, an insurance brokerage, is a New York corporation with its principal place of business in New York City.
Graham Miller is an adjustment firm retained by Lloyd's. Shaun Coyne is a loss adjuster at Miller.
City Safe, a New Jersey corporation, has its principal place of business in New Jersey and New York. The firm provides safe expertise for Lloyd's. Karl Alizade is a principal of City Safe.
Detective McNicholas, formerly with the New York City Police Department, helped investigate the reported burglary of Cindy Royce and Maximus.
Prior Proceedings
On January 7, 1990, Cindy Royce and Maximus initiated a civil suit in the English High Court of Justice, Queen's Bench Division, Commercial Court (the "English Action") against 106 Lloyd's underwriters. Mr. Justice Waller presided. In their "Points of Claim" (Complaint), Cindy Royce and Maximus alleged that Lloyd's' rejection of the Plaintiffs' Proof of Loss statement was a breach of contract on Jewelers Block Insurance Policies ZJB8901346 251NM and ZJB900233 255M. Plaintiffs sought $2,475,000.00 and $2,500,000.00 per policy and interest.
On October 2, 1991, in the thirtieth day of the trial, Cindy Royce and Maximus applied to discontinue the English Action, provided they would not pursue their claims elsewhere with court ordered costs. Their application for discontinuance was denied. On October 3, 1991, the Plaintiffs' abandoned their claims and Mr. Justice Waller entered a dismissal for the Defendants.
Plaintiffs appealed Mr. Justice Waller's denial of discontinuance to the English Court of Appeal. Lord Donaldson upheld the denial of discontinuance and affirmed the dismissal in favor of the Defendants.
On March 25, 1992, Samuel Scheiner, Morton Gold, Daniel Squillante, Benoit Dreyfus, Randy Scheiner, Cindy Royce, and Maximus were indicted by the Grand Jury of the County of New York on three counts: (1) Conspiracy in the Fourth Degree, in violation of Penal Law Section 105.10(1); (2) Insurance Fraud in the First Degree, in violation of Penal Law Section 176.30; and (3) Attempted Grand Larceny in the First Degree, in violation of Penal Law Sections 110.00 and 155.42.
In a plea agreement entered into on October 16, 1992, all charges against Randy Scheiner, Cindy Royce and Maximus were dismissed. At the same time, Samuel Scheiner, Morton Gold and Daniel Squillante pled guilty to Attempted Grand Larceny in the Fourth Degree. As a result of a separate indictment, Daniel Squillante pled guilty to violating Tax Law Section 1804(b), failing to properly report his taxable income for the years 1986 through 1990.
Also in 1992, Cindy Royce and Maximus filed suit in the Southern District of New York against their English counsel, Simmons & Simmons. On July 27, 1993, Judge Patterson granted Simmons & Simmons' motion for summary judgment against Cindy Royce and Maximus' claims of professional malpractice, breach of contract, and violation of New York judiciary law section 487 and denied summary judgment on their claims of unjust enrichment. Judge Patterson also granted Simmons & Simmons' motion to dismiss pursuant {F. Supp. 691} to the doctrine of forum non conveniens.
On January 6, 1993, Plaintiffs Randy Scheiner, Royce Scheiner, Cindy Royce and Maximus filed this action against Defendants. In their complaint, the Plaintiffs allege the following:
(1) Lloyd's breached its contract for both the primary and excess policies;
(2) Lloyd's practiced deceptive business policies and acts proscribed by § 349 of the General Business Law of New York State;
(3) Defendants maliciously prosecuted Randy Scheiner, Cindy Royce ad Maximus for their personal unjust enrichment and benefit;
(4) Defendants intentionally inflicted emotional distress upon Randy Scheiner;
(5) Defendants intentionally inflicted emotional distress upon Royce Scheiner;
(6) Defendants initiated a criminal investigation of Randy Scheiner, Cindy Royce and Maximus constituting an abuse of process;
(7) Defendants violated RICO by engaging in a pattern of racketeering activity;
(8) Defendants Hartley Cooper and Levmore-Finch committed acts of negligence and malpractice by failing to perform their brokerage services according to generally accepted principles;
(9) Defendant Holmes breached its contract to protect the Plaintiffs' premises because other premises they protected were burglarized;
(10) Defendant Holmes defrauded Cindy Royce and Maximus by failing to provided contracted and paid for security devices; and
(11) Defendants violated Cindy Royce's and Maximus' civil rights under § 1983 by conspiring to commit perjury, tamper with evidence and to prevent Cindy Royce and Maximus from presenting truthful

witnesses in violation of due process.

On March 9, 1993,1 the collective Defendants filed a motion for summary judgment, on the grounds of res judicata and/or collateral estoppel, as to all asserted claims or, in the alternative, a motion to dismiss all asserted claims for failure to state a claim and failure to plead two of the claims sounding in fraud, and requesting an order requiring Plaintiffs to post a security bond for $ 250,000.
On May 14, 1993, Defendants Hartley Cooper filed a separate motion for summary judgment as to all claims asserted against it on the grounds of collateral estoppel, or in the alternative, an order dismissing all claims against Hartley Cooper for lack of pendant jurisdiction.
Defendant Levmore-Finch did not answer or file motions to dismiss in this action.
Oral argument on the motions was heard on June 30, 1993 and the motions were considered fully submitted as of that date.
On January 5, 1989, underwriters from Lloyd's issued Jewelers' Block Policy No. ZJB8901346 251NM to Plaintiffs Cindy Royce and Maximus for a premium of $110,000.00. The policy insured Cindy Royce and Maximus for a period of 12 months, beginning July 10, 1989, against loss by theft up to a maximum of $2,500,000.00, with a $25,000.00 deductible. (Complaint P 19). On February 9, 1989, Plaintiffs paid a $9,500.00 premium for an additional "excess policy" for losses in excess of $2,500,000.00. Both policies contained a "Service of Suit Clause," meaning the underwriters agreed to adjudicate claims before a court of competent jurisdiction in the United States, as well as a "False Swearing Clause."
On August 18, 1989, the premises of Cindy Royce and Maximus were reportedly burglarized. Both insurance policies were in effect at the time of the burglary. On November 2, 1989, Samuel Scheiner, in his capacity as Secretary/Treasurer for Cindy Royce and Maximus, filed a Proof of Loss with Lloyd's for more than $5 million. {F. Supp. 692} Lloyd's rejected the Proof of Loss on December 18, 1989. (Complaint P 23).
In January, 1990, Plaintiffs Cindy Royce and Maximus met with Mr. Philip Vaughn, a partner in the English law firm Simmons & Simmons, at Cindy Royce's New York office. Mr. Vaughn advised the Plaintiffs, and their New York attorney Mr. Fiore, that a law suit in London would take significantly less time than in New York.
On February 7, 1990, Cindy Royce and Maximus initiated the English Action alleging that Lloyd's' rejection of their Proof of Loss breached the contract. Lloyd's' "Amended Points of Defense" (the English Answer), alleged the following:
(1) a principal or employee of Cindy Royce and Maximus was dishonestly involved in the burglary, entitling the Underwriters to refuse to make payment under the false swearing clause;
(2) the Underwriters were entitled to reject the Proof of Loss because there was no burglary; the outer vault door was "torched" while in the open position and other physical evidence reasonably indicated that the theft was staged and perpetrated by someone on the inside with access to the premises, alarm system, safe and vault combinations;
(3) Samuel Scheiner, a principal of Cindy Royce and Maximus, was fraudulently involved with the burglary;
(4) Cindy Royce and Maximus breached the policies by failing to properly maintain a detailed and itemized inventory of their property;
(5) Cindy Royce and Maximus fraudulently inflated the amount of their claim;
(6) Cindy Royce and Maximus breached a condition of their policies by keeping inadequate records and;
(7) Cindy Royce and Maximus committed a variety of breaches of warranty, misrepresentations and nondisclosures, which entitled the Underwriters to avoid their policies.
The English trial began on April 23, 1991. The English Judge, Mr. Justice Waller, travelled to New York, visited the premises, the vault and safe. On October 2, 1991, the thirtieth day of trial, the Plaintiffs asked for a discontinuance on terms that they would not bring other proceedings elsewhere and that the court should order costs accordingly. Mr. Justice Waller denied their application for discontinuance.
On October 3, 1991, the Plaintiffs abandoned their claims and Mr. Justice Waller entered a dismissal for the Defendants. The Plaintiffs lost their appeal of the denial of discontinuance in the English Court of Appeal.
I. Legal Standards
In addressing Defendants' motions, the following familiar standards are germane. First, "summary judgment may be granted only when there is no genuine issue of material fact remaining for trial and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). As a general rule, all ambiguities and inferences drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party. However, where the nonmoving party bears the burden of proof at trial, Rule 56 permits the moving party to point to an absence of evidence to support an essential element of the nonmoving party's claim." Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir. 1991) (citations and internal quotation omitted). In sum, if in "viewing the evidence produced in the light most favorable to the nonmovant, . . . a rational trier could not find for the nonmovant, then there is no genuine issue of material fact and entry of summary judgment is appropriate." Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991); See also Bay, 936 F.2d at 116.
A court should dismiss a complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure only if it appears beyond doubt that the plaintiff can prove no set of facts supporting its claim that entitles it to relief. See H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1989); Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. {F. Supp. 693} 2d 59, 104 S. Ct. 2229 (1984); Dahlberg v. Becker, 748 F.2d 85, 88 (2d Cir. 1984), cert. denied, 470 U.S. 1084, 85 L. Ed. 2d 144, 105 S. Ct. 1845 (1985). The complaint's allegations must be construed in the light most favorable to the plaintiff and the plaintiff's allegations accepted as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Dacey v. New York County Lawyers' Ass'n, 423 F.2d 188, 191 (2d Cir. 1969), cert. denied, 398 U.S. 929, 26 L. Ed. 2d 92, 90 S. Ct. 1819 (1970).
II. The Effect of the English Action
A. Comity, Res Judicata and the English Action
The collective Defendants, except for Hartley Cooper, plead the res judicata effect of the English action requires a finding of summary judgment in their favor. In denying their motion, we review the principles of comity and res judicata.
The Supreme Court has defined comity as:
the recognition which one nation allows within its Territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws. Hilton v. Guyot, 159 U.S. 113, 164, 40 L. Ed. 95, 16 S. Ct. 139 (1895). The general rule of comity requires the domestic court to exercise jurisdiction concurrently with the foreign court. China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987); Laker Airways Ltd. v. Sabena, Belgian World Airlines, 235 U.S. App. D.C. 207, 731 F.2d 909, 926-27 (D.C. Cir. 1984).
If a final judgment is reached first in the foreign court, it can then be pled as res judicata in the domestic court. See China Trade, 837 F.2d at 36. Without a final judgment from another court, surrender of jurisdiction is justified only under exceptional circumstances. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25-26, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). However, prior foreign adjudication will not bar later domestic claims provided the initial forum did not have power to award the full relief sought in the later litigation. Davidson v. Capuano, 792 F.2d 275, 278 (2d Cir. 1986).
Under the doctrine of res judicata, a final judgment on the merits precludes the parties or those in privity with them from relitigating claims that were or could have been raised in the prior action. Fay v. South Colonie Cent. School Dist., 802 F.2d 21, 28 (2d Cir. 1986). But see Don King Productions, Inc. v. Douglas, 742 F. Supp. 741, 754 (S.D.N.Y. 1990) (exceptions to finality requirement exist "where a ruling is rendered 'practically' final owing to factors demonstrating 'that it was not avowedly tentative") (quoting Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 89 (2d Cir. 1961), cert denied, 368 U.S. 986 (1962)).
Under New York's "transactional approach," if claims in a later action arise out of the same "factual grouping" that formed the predicate for the prior proceeding, they are deemed part of the same "claim" and will be barred irrespective of whether they are based upon different legal theories or seek different relief. See Davidson, 792 F.2d at 278.
The English courts have not reached a final judgment on the merits that may be pled as res judicata in this Court. At Plaintiffs' behest, the English proceedings were abandoned in mid-course. The English Court's order of judgment states in full:
UPON hearing Counsel for the Plaintiffs and for the Defendants and upon the Plaintiffs having abandoned their claim against all the Defendants
1. Judgment should be entered for the Defendants with costs such costs to include the costs reserved by the Honorable Mr. Justice Hirst dated the 13th of March 1991 to be taxed on an indemnity basis and to exclude the costs incurred and thrown away by the amendments to paragraphs 8, 9(2) and 9(3) of the Points of Defence dated the 28th day of August 1991
2. The Plaintiffs' costs incurred and thrown away by the amendments to paragraphs {F. Supp. 694} 8, 9(2) and 9(3) of the Points of Defence dated the 28th day of August be taxed and paid by the Defendants on the standard basis.
(Order, Q.B. Comm. Ct., 1990-226, Def. Ex. Q).
The English Court did not regard this order as a final judgment on the merits with preclusive effect. In issuing his judgment on costs, Mr. Justice Waller stated:
I gave judgment yesterday in an application to discontinue this action and in that judgment I set out the background to the action. I gave my reasons on that occasion for refusing the application of the plaintiffs for a discontinuance. This morning Mr. Hallgarten on behalf of the plaintiffs has on their behalf abandoned the plaintiffs (sic) claim. He has done so on the basis of observations I made in that judgment. It is only right that I should make clear that what I say and what I said there was my own view which is obviously not binding on any court in New York or anywhere else.
(Transcript of Proceedings, Judgment on Costs, Day 31, Q.B. Comm. Ct., 1990-226, Def. Ex. P) (emphasis added).
Further, in rendering his decision, Mr. Justice Wallace explicitly refused to "deliver a judgment on the merits of this case and on short final speeches in the middle of the whole thing when somebody is abandoning." (Transcript of Proceedings, Day 31, Q.B. Comm. Ct, 1990-226, Def. Ex. O at 27). Even the appellate judge, Lord Donaldson, emphasized Mr. Justice Waller's acknowledgement that his judgment was not final: "'of course, the defendants would have preferred, costs apart, to have gone through with the action in full and secured a decision by the judge on the merits.'" (Transcript of Judgment Court of Appeals, Lord Donaldson quoting Justice Waller, Def. Ex. R at 5).
Thus as the English courts refuse to characterize their holding as a final judgment on the merits, this Court may not do so in their stead. Cf. Herbstein v. Bruetman, 743 F. Supp. 184, 188 (S.D.N.Y. 1990).
Therefore, Defendants' motion for summary judgment on the grounds of res judicata is denied.
B. Collateral Estoppel and the English Action
In finding English and New York courts apply similar notions of collateral estoppel, the Southern District previously held "[a] party is precluded from relitigating matters determined adversely to him in a prior action." Fairchild, Arabatzis & Smith, Inc. v. Prometco (Produce & Metals) Co., 470 F. Supp. 610, 616 (S.D.N.Y. 1979).2 The collateral estoppel effect of the English action must be determined by New York Law. Id. at 615. See also British Midland Airways Ltd. v. International Travel, Inc., 497 F.2d 869, 871 n.2 (9th Cir. 1974).
The Second Circuit has held that in New York, collateral estoppel requires two levels of inquiry: first, the court must determine if the issues are identical; second, the court must determine whether the party to be bound had a full and fair opportunity to contest the determination. Conte v. Justice, 996 F.2d 1398, 1993 U.S. App. Decision(2d Cir. 1993).
Collateral estoppel precludes the relitigation of issues identical to those raised and necessarily decided in a prior proceeding based on a different claim. Ryan v. New York Tel. Co., 62 N.Y.2d 494, 500, 478 N.Y.S.2d 823, 467 N.E.2d 487 (1984). For collateral estoppel to apply, the issue in question must have been "material to the first action or proceeding and essential to the decision rendered therein and [is] the point actually to be determined in the second action or proceeding such that 'a different judgment in the second would destroy or impair the rights or interests established by the first."' Id. at 500-01, 478 N.Y.S.2d 823, 467 N.E.2d 487 (citations omitted). Moreover, "the party against whom preclusion is {F. Supp. 695} sought [must have] been accorded a full and fair opportunity to contest the issue [in the prior proceeding]." Allied Chem. v. Niagara Mohawk Power Corp., 72 N.Y.2d 271, 276, 532 N.Y.S.2d 230, 232, 528 N.E.2d 153, 155 (1988) cert. denied, 488 U.S. 1005, 102 L. Ed. 2d 777, 109 S. Ct. 785 (1989).
"To the extent that collateral estoppel has a fixed-star, the requirement of issue identity between the prior and present action is immutable." Conte v. Justice, 996 F.2d 1398, 1993 U.S. App. Decision(2d Cir. 1993). Under the doctrine of collateral estoppel, the issue identity prong is satisfied if the pleadings, parties and claims reveal significant similarities. Cf. Wilder v. Thomas, 854 F.2d 605, 617-20 (2d Cir. 1988) (comparison of pleadings establishes issue identity) (citing Watts v. Swiss Bank Corp., 27 N.Y.2d 270, 278, 317 N.Y.S.2d 315, 321, 265 N.E.2d 739, 741 (1970); Mother's Restaurant, Inc. v. Mama's Pizza, 723 F.2d 1566, 1570 (Fed. Cir. 1983); Nelson v. Swing-A-Way Mfg. Co., 266 F.2d 184, 187 (8th Cir. 1959)). In this case Plaintiffs Cindy Royce and Maximus, as dominus litis,3 already pursued identical breach of contract claims against the Defendant Underwriters in the English Action.4

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