1996 U.S. Dist. LEXIS 14822, *

MASON TENDERS DISTRICT COUNCIL PENSION FUND, et al., Plaintiffs, - against - JAMES MESSERA, et al., Defendants.

95 Civ. 9341 (RWS)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

1996 U.S. Dist. LEXIS 14822


October 7, 1996, Decided  
October 8, 1996, FILED

PRIOR HISTORY:  [*1]  Original Opinion of June 25, 1996, Reported at: 1996 U.S. Dist. LEXIS 8929.

DISPOSITION: Plaintiffs' motion for reargument is hereby denied in part and granted in part. On reargument, the underlying motion to dismiss denied.

CORE TERMS: reargument, counterclaim, motion to dismiss, earlier action, permissive counterclaim, Local Rule, judicata, impair, res judicata, reargue, theory of recovery, earlier state, overlooked, course of dealing, failed to raise, applicability, grounded, kickback

COUNSEL:
 
APPEARANCES:
 
PROSKAUER ROSE GOETZ & MENDELSOHN, Attorney for Plaintiffs, New York, NY, By: MYRON D. RUMELD, ESQ., Of Counsel.
 
MAX E. GREENBERG, TRAGER, TOPLITZ & HERBST, Attorney for Defendants Leotta and Pervale, New York, NY, By: IRA C. WELLEN, ESQ., Of Counsel.

JUDGES: ROBERT W. SWEET, U.S.D.J.

OPINIONBY: ROBERT W. SWEET

OPINION: OPINION
 
Sweet, D. J.,

Defendants Salvatore Leotta and Pervale Contracting Company (the "Pervale Defendants" or "Defendants") have moved pursuant to Local Rule 3(j) and Fed. R. Civ. P. 59 to reargue the Court's opinion and order dated June 25, 1996 (the "Opinion") denying Defendants' motion to dismiss the complaint as against them. For the reasons set forth below, the motion to reargue is granted and upon reargument the motion to dismiss is denied.
 
Background

The nature of the parties, prior proceedings, and facts underlying this action are set forth in the Opinion, familiarity with which is assumed. The  [*2]  Opinion denied the Pervale Defendants' motion to dismiss the complaint as against them.

On July 3, 1996, Defendants moved to reargue, and the matter was deemed fully submitted on July 24, 1996. Defendants' motion for reargument is based on, inter alia, the contention that the Court overlooked essential factual matters and controlling areas of law with respect to Defendants' argument that the complaint should be dismissed on grounds of res judicata.
 
Discussion
 
I. Legal Standard

Local Rule 3(j) provides in pertinent part, "There shall be served with the notice of motion a memorandum setting forth concisely the matters or controlling decisions which counsel believes the court has overlooked." Thus, to be entitled to reargument under Local Rule 3(j), a party must demonstrate that the Court overlooked controlling decisions or factual matters put before it on the underlying motion. See Ameritrust Co. Nat'l Ass'n v. Dew, 151 F.R.D. 237 (S.D.N.Y. 1993); Fulani v. Brady, 149 F.R.D. 501, 503 (S.D.N.Y. 1993).

Local Rule 3(j) is to be narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been considered  [*3]  fully by the court. See Caleb & Co. v. E.I. Du Pont De Nemours & Co., 624 F. Supp. 747, 748 (S.D.N.Y. 1985). In deciding a Local Rule 3(j) motion, the court must not allow a party to use the motion to reargue as a substitute for appealing from a final judgment. See Morser, 715 F. Supp. 516, 517; Korwek v. Hunt, 649 F. Supp. 1547, 1548 (S.D.N.Y. 1986). Therefore, a party in its motion for reargument "may not advance new facts, issues or arguments not previously presented to the court." Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb, Inc., 1989 U.S. Dist. LEXIS 9145, No. 86 Civ. 6447, 1989 WL 162315, at *3 (S.D.N.Y. 1989).
 
II. Reargument is Appropriate
A. The Court Overlooked a Factual Issue
The Pervale Defendants contend that reargument is warranted here because the Opinion failed to find that the Plaintiffs' present claims were distinct from Plaintiffs' previous state court counterclaim, which was dismissed for failure to state a claim. Defendants are correct inasmuch as in the absence of such a factual finding, the Court improperly concluded that res judicata did not bar Plaintiffs' present claims. Accordingly, the motion for reargument is granted.

Upon reargument,  [*4]  Defendants' motion to dismiss is denied. The Plaintiffs' claims in this action -- which allege that the Pervale Defendants participated in a fraudulent enterprise to embezzle Plaintiffs' funds through work on a property owned by Plaintiffs -- are distinct from their double-billing counterclaim in the earlier state court action, Pervale Contracting Inc. v. 32-36 West 18th Corp., et al., 1996 N.Y. App. Div. LEXIS 8887, Sup. Ct. N.Y. County, Index No. 94-116564 (August 16, 1995).

Although Plaintiffs' present claims arise out of the same course of dealing among the same parties which gave rise to their previous counterclaim, the claims are nonetheless distinct because they involve different gravamina. See Reilly, 45 N.Y.2d 24, 28, 379 N.E.2d 172, 175, 407 N.Y.S.2d 645, 648 (1978) ("Two or more different and distinct claims or causes of action may often arise out of a course of dealing between the same parties, even through it is not, except in refined legal analysis, easy to say that a different gravamen is factually involved.") (citation omitted). The Plaintiffs' counterclaim in the earlier state court action was grounded in contract, whereas the Plaintiffs' present claims are grounded in fraud. Moreover, the present  [*5]  claim alleges a kickback scheme that was not alleged in the counterclaim. Accordingly, upon reargument, Defendants' motion to dismiss the Complaint as against them will be denied.
B. The Court Overlooked Controlling Law
The Pervale Defendants also contend that the Court, in finding that Plaintiffs' claims were not barred by res judicata, misapplied controlling res judicata case law and improperly based its holding on the permissive counterclaim rule. In Classic Automobiles, the First Department held:

New York's permissive counterclaim rule allows counterclaims to be raised through separate litigation . . . as long as a party defendant does not remain silent in one action, then bring a second suit on the basis of a preexisting claim for relief that would impair the rights or interests established in the first action.
 
Classic Automobiles Inc. v. Oxford Resources Corp., 204 A.D.2d 209, 612 N.Y.S.2d 32, 33 (1st Dep't 1994).

The Pervale Defendants correctly note that the permissive counterclaim rule does not bar application of res judicata when a party submits the same claims in separate actions. As set forth above, however, the Plaintiffs'  [*6]  claims are distinct. Accordingly, the Court properly found that, in light of the permissive counterclaim rule followed by New York courts, the Plaintiffs' claims are not barred by res judicata.

Finally, the Pervale Defendants contend that the Court erred in failing to apply the exception described by the Classic Automobiles court -- that res judicata bars permissive counterclaims that would "impair rights granted under the prior judgment." 204 A.D.2d at 209, 612 N.Y.S.2d at 33. The Pervale Defendants argue that the Court should have dismissed Plaintiffs' present claims because these claims threaten to impair rights obtained by the Pervale Defendants in the earlier state action. The Pervale Defendants are correct insofar as the Court's opinion does not address the applicability of this "exception" to the permissive counterclaim rule to the facts of this case. As the Court did not fully address the applicability of this exception to the case at bar, the Pervale Defendants' reargument will be granted with respect to this argument.

Upon reargument, however, the Court finds that this exception does not apply here. The Pervale Defendants are correct that Plaintiffs' present  [*7]  claims could impair the Pervale Defendants' rights established in the earlier breach of contract action -- if the Court finds that the contract was illegally or fraudulently obtained, it will be rendered unenforceable. Defendants, however, fail to consider the other prerequisite for application of the exception -- that the "defendant . . . remain[s] silent in one action." In order for the exception to apply, a theory of recovery must have been available to the party during the earlier action and the party must have failed to raise that theory of recovery during the earlier action. See Classic Automobiles, 204 A.D.2d at 209, 612 N.Y.S.2d at 33; Smith v. Russell Sage College, 54 N.Y.2d 185, 194, 429 N.E.2d 746, 750, 445 N.Y.S.2d 68, 72 (1981) (plaintiff's failure to plead a theory of recovery during an earlier action, "available to the plaintiff then as it is now," barred pleading that theory in later action).

Plaintiffs here could not have submitted their present claims of fraud in the state action, because, according to Plaintiffs' allegations, the Pervale Defendants and trustees of the Plaintiffs' funds concealed from Plaintiffs the kickback and embezzlement scheme  [*8]  from which those claims arose. See Smith, 54 N.Y.2d at 193, 429 N.E.2d 746, 445 N.Y.S.2d 68 (1981) ("'A defendant cannot justly object to being sued on a part or phase of a claim that the Plaintiff fails to include in any earlier action because of the defendant's own fraud.'") (quoting with approval Restatement, Judgements 2d, § 61.2, Comment j); Sherman v. Ansell, 207 A.D.2d 537, 537-38, 616 N.Y.S.2d 90, 91 (2d Dep't 1994) (although plaintiff failed to raise legal malpractice counterclaim in earlier action brought by defendant to recover unpaid attorney fees, plaintiff's claim was not barred by res judicata because plaintiff could not have discovered alleged malpractice until after earlier action). Accordingly, the "exception" to the permissive counterclaim rule is inapplicable, and the Court's holding that res judicata did not bar Plaintiffs' claims was correct. Accordingly, upon reargument, Defendants' motion to dismiss the complaint as against them will be denied.
 
Conclusion

For the reasons stated above, Plaintiffs' motion for reargument is hereby denied in part and granted in part. On reargument, the underlying motion to dismiss is hereby denied.  [*9] 

It is so ordered.
 
New York, N. Y.
October 7, 1996

ROBERT W. SWEET

U.S.D.J.