Newman v. Krintzman

United States Court of Appeals
For the First Circuit
No. 12-1995
MARC NEWMAN AND JEFFREY HONIG,
AS TRUSTEES OF WENDY HONIG TRUST,
Plaintiffs, Appellants,
v.
STEVEN E. KRINTZMAN,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
Before
Lynch, Chief Judge,
Lipez and Thompson, Circuit Judges.
Richard C. Bardi, with whom Law Office of Richard C. Bardi was
on brief, for appellants.
Colleen C. Cook, with whom Michael Paris and Nystrom Beckman
& Paris LLP were on brief, for appellee.
July 24, 2013
THOMPSON, Circuit Judge.
Overview
Dealing with a doctrine like claim preclusion (the modern
name for res judicata) can sometimes be difficult. But difficult
is not impossible, even for today's issue (which, by the way, reads
like something lifted from a law-school exam): Does a judgment
dismissing a case as time-barred under New York law preclude a
later suit on the same claim in another jurisdiction involving a
longer, unexpired limitations period? Plaintiffs Marc Newman and
Jeffrey Honig, trustees of Wendy Honig Trust, say no. Defendant
Steven Krintzman says yes. The district judge answered yes and so
dismissed the trustees' complaint against Krintzman alleging
default on a promissory note. See Fed. R. Civ. P. 12(b)(6).
Reviewing that decision de novo, see Schatz v. Republican
Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012), which is a fancy
way of saying that we give a fresh look to the judge's reasoning,
we affirm.
How It All Began
Before diving into the details of our story, we offer
these reminders: Like the district judge, we must take the
complaint's well-pleaded facts as true, construing them in the
light most favorable to the trustees. Id. And, also like the
judge below, we may "consider (a) 'implications from documents'
attached to or fairly 'incorporated into the complaint,'
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(b) 'facts' susceptible to 'judicial notice,' and (c) 'concessions'
in plaintiff[s'] 'response to the motion to dismiss.'" Id. at 55-
56 (footnote omitted) (quoting Arturet-Vélez v. R.J. Reynolds
Tobacco Co., 429 F.3d 10, 13 n.2 (1st Cir. 2005)); see also
Giragosian v. Ryan, 547 F.3d 59, 66 (1st Cir. 2008) (stressing that
courts can mull over "matters of public record in resolving a Rule
12(b)(6) motion," adding that "[m]atters of public record"
typically "include 'documents from prior state court
adjudications'" (citation omitted) (quoting Boateng v.
InterAmerican Univ., Inc., 210 F.3d 56, 60 (1st Cir. 2000)));
Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993) (emphasizing that
courts can look to "documents the authenticity of which are not
disputed by the parties"). Now on to the facts.
In the late 1980s and early 1990s, Krintzman and his
company, Technicraft Industries, Inc., borrowed a boatload of money
from the Wendy Honig Trust. His then-wife Wendy Honig was the
trust's beneficiary. But to get the funds, Krintzman or
Technicraft executed promissory notes in favor of the Trust, with
Krintzman also personally guaranteeing the company's borrowing.
One note says that it shall be governed by Massachusetts law. The
others say that they shall be governed by New York law.
Alleging that Krintzman and Technicraft had defaulted on
all the notes, the Trust's trustees sued the two in New York state
court in 2009 for (most pertinently here) breach of contract.
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There, the parties sparred over whether the trustees had filed suit
within New York's 6-year limitations period for contract actions.
See N.Y. C.P.L.R. § 213(2). They agreed that this statute governed
the lawsuit. But the trustees thought that certain events not
relevant here tolled the statute's running, while Krintzman and
Technicraft thought otherwise. The New York trial court eventually
sided with Krintzman and Technicraft, granting their motion to
dismiss based on the expiration of the New York statute of
limitations.
Not willing to let things go, the trustees headed for New
York's intermediate-appellate court, the Appellate Division.
There, the adversaries continued quarreling about the New York
statute of limitations. But the trustees also débuted another
argument: Stressing that the note governed by Massachusetts law is
a "sealed instrument," they insisted that a Massachusetts 20-year
statute of limitations applied, see Mass. Gen. Laws ch. 260, § 1,
which, they added, meant that their suit was timely, at least when
it came to that note. In a terse, 2-page decision, the Appellate
Division affirmed, concluding that the trustees' case was time-
barred under New York law. And while the court did not directly
mention the trustees' Massachusetts-based statute-of-limitations
argument, it did close with these words: "We have considered [the
trustees'] remaining arguments and find them unavailing."
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But that was not the end of the matter. Asserting
diversity jurisdiction, three months later the trustees sued
Krintzman in Massachusetts federal court to recover on the note
controlled by Massachusetts law. Krintzman responded with a motion
to dismiss, contending that the dismissal of the New York lawsuit
barred the trustees' current claim.1 Apparently, everyone agreed
that the trustees filed suit within the 20-year window framed by
the Massachusetts statute of limitations. Nevertheless, the
district judge in his written opinion ruled that the limitations
dismissal was on the merits and claim preclusive and thus dismissed
the present case. See Newman v. Krintzman, No. 11-10540-GAO, 2012
WL 2912941, at *1-3 (D. Mass. July 17, 2012). Which brings us to
today.
A Primer on the Parties' Opposing Positions
The trustees insist that a limitations dismissal under
New York law is not an on-the-merits decision, and so, their
argument continues, such a dismissal cannot preclude suit on the
same claim in another jurisdiction involving a different
limitations period. Krintzman believes exactly the opposite,
naturally. Working through this issue will take us down a fairly
1
See generally In re Colonial Mortg. Bankers Corp., 324 F.3d
12, 16 (1st Cir. 2003) (holding that a judge may dismiss a case
based on the affirmative defense of claim preclusion if (a) the
defense is disclosed in "the complaint, the documents (if any)
incorporated therein, matters of public record, and other matters
of which the court may take judicial notice"; and (b) "the facts so
gleaned . . . conclusively establish the . . . defense").
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dense legal trail. But fortunately, there is enough law out there
to guide our way.
Our Analysis
We begin with a few basics. Respect for prior judgments
is deeply ingrained in our legal regime — the Constitution's full-
faith-and-credit clause, U.S. Const. art. IV, § 1, and its
statutory equivalent, 28 U.S.C. § 1738, combine with the common
law's claim-preclusion doctrine to help make it so. See R.G. Fin.
Corp. v. Vergara-Nuñez, 446 F.3d 178, 182 (1st Cir. 2006). And
under § 1738's full-faith-and-credit mandate, federal courts must
give preclusive effect to a state-court judgment if the state court
itself would. See, e.g., Matsushita Elec. Indus. Co. v. Epstein,
516 U.S. 367, 373 (1996); Migra v. Warren City Sch. Dist. Bd. of
Educ., 465 U.S. 75, 80-81 (1984); R.G. Fin. Corp., 446 F.3d at 182.
In other words, we must accept that state's rules for deciding the
effect of the judgment, which here means that New York preclusion
law controls. See, e.g., Matsushita Elect. Indus. Co., 516 U.S. at
373; Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373,
380 (1985); R.G. Fin. Corp., 446 F.3d at 182-83.
Reduced to its essentials, New York law bars successive
suits between the same parties or their privies on causes of action
that were or could have been litigated in the first case — if but
only if the first case resulted in a judgment "on the merits" by a
court of competent jurisdiction. See, e.g., People ex rel. Spitzer
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v. Applied Card Sys., Inc., 894 N.E.2d 1, 12 (N.Y. 2008); In re
Hunter, 827 N.E.2d 269, 274 (N.Y. 2005). Every part of this claim-
preclusion rule has been fought over in cases and in commentaries.
See Rick v. Wyeth, Inc., 662 F.3d 1067, 1070 (8th 2011) (discussing
New York law). But as argued by the parties, only the quoted
phrase is of concern to us, i.e., whether a limitations dismissal
under New York law is a judgment "on the merits."
New York law on this issue is unsettled — that is what
our Second Circuit colleagues recently concluded, which is why they
opted to certify the issue to the New York Court of Appeals (which
is the Empire State's highest court). See Joseph v.
Athanasopoulos, 648 F.3d 58, 67-68 (2d Cir. 2011) (certifying the
question whether a limitations dismissal constitutes a judgment "on
the merits," entitled to preclusive effect, "such that the
plaintiff cannot litigate her claim in another jurisdiction with a
longer, unexpired limitations period") (internal quotation marks
omitted). Having received the request, the New York Court of
Appeals initially accepted. See Joseph v. Athanasopoulos, 967
N.E.2d 694, 694-95 (N.Y. 2012). But appellant no longer had enough
money to pay for its appeal and wanted to drop the matter. See
Joseph v. Athanasopoulos, 478 F. App'x 701, 703 (2d Cir. 2012)
(unpublished); see also Joseph, 967 N.E.2d at 694-95. So the New
York Court of Appeals reconsidered its earlier order and declined
to accept certification. Joseph, 967 N.E.2d at 694-95. Acting on
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appellant's motion, the Second Circuit dismissed appellant's
federal appeal, emphasizing, though, that "this dismissal in no way
reflects a change" in its view that the issues implicated in the
certified question remain "unresolved under New York law." Joseph,
478 F. App'x at 703. No party here has asked us to certify the
question to the New York Court of Appeals. And we think there are
enough clues — including clues from New York cases decided after
the certification request in Joseph v. Athanasopoulos — for us to
decide the matter. See Samaan v. St. Joseph Hosp., 670 F.3d 21, 31
(1st Cir. 2012) (discussing our standard for certification);
González Figueroa v. J.C. Penney P.R., Inc., 568 F.3d 313, 323 (1st
Cir. 2009) (same). So we soldier on, knowing that New York "is
free to tell us" that our state-law analysis is "all wet," since,
obviously, state courts are not bound by our take on state law.
See Candelario del Moral v. UBS Fin. Servs. Inc. of P.R., 699 F.3d
93, 101 (1st Cir. 2012).2
Smith v. Russell Sage College, 429 N.E.2d 746 (N.Y. 1981)
("Russell Sage," for short), offers a good place to start
unraveling the claim-preclusion mysteries of the present case. The
Russell Sage plaintiff sued the defendant on several fraud and
contract claims. Id. at 747. The defendant fired back with a
2
See generally Diginet, Inc. v. W. Union ATS, Inc., 958 F.2d
1388, 1395 (7th Cir. 1992) (Posner, J.) (noting that state courts
are not shackled "by federal courts' interpretations of state law"
and "will give such interpretations no more weight than their
persuasiveness earns them").
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motion to dismiss. Id. at 748. Because the New York trial judge
considered evidence outside the pleadings, he treated the motion as
one for summary judgment. Id. And when all was said and done, the
judge jettisoned the fraud claims as time-barred under the
applicable limitations statute and the contract claims as barred by
the statute of frauds. Id. at 748. Rather than appeal, the
plaintiff sued the defendant again in New York state court, this
time alleging additional fraud claims that supposedly surfaced
while the first suit was still pending — claims, it turns out, that
were part of the same "factual grouping" as the prior suit. Id. at
748-49. Yet the trial court refused to kick the case out on claim-
preclusion grounds. Id. Ultimately, though, the New York Court of
Appeals held that claim-preclusion principles barred the second
suit. Id. at 749-50. And what that court said about whether a
limitations dismissal is a dismissal "on the merits" is
particularly apropos here, supporting Krintzman's position and
pointing the way to our conclusion:
[T]he impact of the Statute of Limitations,
though often denominated as procedural, in a
practical sense may also be said to be
substantive; as we have had occasion to
observe, while a time bar is usually [s]aid to
affect the remedy its interposition is at
least as often the difference between life or
death for the right as well as the remedy.
Id. at 750 (an alteration omitted) (citations omitted) (internal
quotation marks omitted). Wrapping up, the Russell Sage court
said:
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Suffice it to say that a dismissal on these
grounds [i.e., statute of limitations and
statute of frauds] is at least sufficiently
close to the merits for claim preclusion
purposes to bar a second action, especially
where the motion to dismiss the first action
was treated as one for summary judgment on
which the court considered submissions of the
parties dehors the pleadings.
Id.
Sensing the grave problem that Russell Sage poses for
them (after all, their appeal rises or falls on convincing us that
a limitations dismissal is not an on-the-merits decision under New
York law), the trustees make a variety of spirited arguments that
fall into two categories. The first involves their attempts to
distinguish this case from Russell Sage. The second involves their
suggesting that the New York Court of Appeals has since changed the
law in their favor. Ultimately, though, neither grouping
persuades.
As for their initial set of arguments, the trustees note
that the trial judge in Russell Sage treated the motion to dismiss
the first case as one for summary judgment, because he considered
material outside the pleadings. They also make much of the fact
that the Russell Sage trial judge premised dismissal on statute-of-
limitations and statute-of-frauds grounds. But in their case, they
write, the New York trial judge nixed the first suit only on a
motion to dismiss. And, they stress, the judge did so on
timeliness grounds alone. Given these (supposed) critical
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distinctions between the two cases, they say that Russell Sage
holds no sway here.
We disagree. A quick search reveals New York cases
applying Russell Sage where the trial judge in the first case,
acting on a straight motion to dismiss (and not one converted into
a motion for summary judgment), tossed out the lawsuit solely on
limitations grounds. See, e.g., Daved Fire Sys. Inc. v. N.Y.C.
Health & Hosp. Corp., 847 N.Y.S.2d 195, 196 (N.Y. App. Div. 2007);
Mercury Capital Corp. v. Shepherd's Beach, Inc., 758 N.Y.S.2d 843,
843 (N.Y. App. Div. 2003); see generally Marinelli Assocs. v.
Helmsley-Noyes Co., 705 N.Y.S.2d 571, 574 (N.Y. App. Div. 2000)
(discussing Russell Sage, the court emphasized that "factual
submissions . . . concerning the merits of the dispute itself have
not been required before a determination of the Statute of
Limitations issue in the prior action," adding that "[i]f the
information before the court" is sufficient to decide the
limitations question, "a dismissal on that ground will act as a bar
to subsequent litigation" if the other elements of claim preclusion
are met). So the trustees' efforts to distinguish away Russell
Sage fail.
We turn then to their second argument grouping, which is
more challenging than the first. The gist of their position here
is that Tanges v. Heidelberg North America, Inc., 710 N.E.2d 250-11-
(N.Y. 1999), changed New York law in a way that benefits them.
Their theory involves several steps.
Step one: Tanges dealt with a question certified from
the Second Circuit about whether a Connecticut statute barred a
product-liability suit brought in New York. 710 N.E.2d at 251.
Applying New York's choice-of-law rules, the New York Court of
Appeals said the answer depended on whether the Connecticut
statute's effect is "substantive" or "procedural" — only if the
effect is substantive would the statute apply, you see. Id. at
251-52. When the dust settled, Tanges held that the statute is a
statute of repose, not a statute of limitations,3 and a statute of
repose's effect is substantive, not procedural. 710 N.E.2d at 253-
55. As part of its analysis, Tanges highlighted the differences
between statutes of repose and statutes of limitations. Id. And,
the trustees note, Tanges had this to say about statutes of
limitations:
In New York, Statutes of Limitation are
generally considered procedural because they
are viewed as pertaining to the remedy rather
than the right. The expiration of the time
period prescribed in a Statute of Limitations
does not extinguish the underlying right, but
3
As opposed to a statute of limitations, which "establish[es]
a time limit for suing in a civil case . . . based on the date when
the claim accrued (as when the injury occurred or was discovered),"
a statute of repose bars any suit filed "after a specified time
since the defendant acted (such as by designing or manufacturing a
product)," regardless of whether the claim has accrued. Black's
Law Dictionary 1546 (9th ed. 2009) (defining "statute of
limitations" and "statute of repose").
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merely bars the remedy. Nicely summarized
elsewhere, "[t]he theory of the statute of
limitations generally followed in New York is
that the passing of the applicable period does
not wipe out the substantive right; it merely
suspends the remedy."
Id. at 253 (alteration omitted) (some internal quotation marks
omitted) (citations omitted). Step two: Pouncing on Tanges's
right/remedy comments, the trustees suggest that this passage
aligns New York with the "traditional rule," which does not treat
limitations dismissals as on-the-merits decisions. Under this
rule, the running of a statute of limitations bars only the remedy
and not the right — so, they say, that while a limitations
dismissal may snuff out a plaintiff's "remedy" in one jurisdiction,
it does not necessarily stop her from enforcing her "right" in
another where a different limitations period applies. See, e.g.,
Cloverleaf Realty of N.Y., Inc. v. Town of Wawayanda, 572 F.3d 93(2d Cir. 2009) ("Cloverleaf," to save some keystrokes). And hoping
to add some oomph to this point, the trustees tout that a panel of
the Second Circuit in Cloverleaf thought that Tanges shows that
"New York law does not depart from the traditional rule." Id. at
95.4 Step three: Tanges, then, relegates Russell Sage's view
about the preclusive effect of limitations dismissals to the
sidelines, they assert. Step four: Ergo, the district judge here
4
The points made in step two are easily inferable from the
trustees' Tanges/Cloverleaf discussion.
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should not have given Krintzman's state-court win any preclusive
effect. Or so they tell us.
The trustees' thesis has some appeal, at least at first
glance. But it does not hold together. What hurts them is that
Tanges is not the game-changer that they make it out to be.
For starters, Tanges whispered not even the slightest
hint of a suggestion that Russell Sage is bad law: Tanges neither
cited Russell Sage nor said anything about claim preclusion. None
of this is surprising, however, given that Tanges did not deal with
a prior judgment. It dealt instead with a statute of repose and
choice-of-law rules. And in dealing with these matters, Tanges
noted New York's black-letter choice-of-law principle that
limitations statutes "are generally considered procedural because
they are viewed as pertaining to the remedy rather than the right."
710 N.E.2d at 253 (alteration omitted) (emphasis added) (internal
quotation marks omitted). Of course "generally" does not mean
"always," and Russell Sage proves the point. Sure, Russell Sage
noted, a limitations statute's impact is often called "procedural."
429 N.E.2d at 750. But — and this is the money quote — practically
speaking, the statute "may also be said to be substantive," because
"while a time bar is usually [s]aid to affect the remedy" its
application frequently means "life or death for the right as well
as the remedy." Id. (citations omitted) (internal quotation marks
omitted). Before Tanges, plenty of Appellate-Division decisions
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applied Russell Sage in holding that limitations dismissals are on-
the-merits rulings for claim-preclusion purposes.5 One would think
that if Tanges wanted to clamp down on Russell Sage-citing judges,
it would have said something about this phenomenon. Yet as we
noted there is not one word in Tanges on Russell Sage or claim
preclusion. Add to all this what the New York Court of Appeals (in
a slightly different context) recently said — that "a dismissal
based on the statute of limitations . . . is a determination that
the matter is irremediably flawed as a matter of law" and so "is
equivalent to a determination on the merits for [claim-preclusion]
purposes"6 — and we see why, years after Tanges, New York's
Appellate Division still cites Russell Sage as holding that a
limitations dismissal is an on-the-merits decision that carries
claim-preclusive effect.7 And as far as we can tell, no New York
court has said Tanges means that a limitations dismissal now is not
on the merits.
5
See, e.g., In re Pelt v. Police Dep't, 685 N.Y.S.2d 687, 687
(N.Y. App. Div. 1999); Mchawi v. State Univ. of N.Y., Empire State
Coll., 669 N.Y.S.2d 545, 546 (N.Y. App. Div. 1998); Shartrand v.
Town of Glenville, 460 N.Y.S.2d 220, 221 (N.Y. App. Div. 1983).
6
Landau v. LaRossa, Mitchell & Ross, 892 N.E.2d 380, 383 n.3
(N.Y. 2008) (citation omitted) (internal quotation marks omitted).
7
Hendrickson v. Philbor Motors, Inc., 955 N.Y.S.2d 384, 390
(N.Y. App. Div. 2012); Hae Shang Wang v. Pao-Mei Wang, 947 N.Y.S.2d
582, 585 (N.Y. App. Div. 2012); Komlosi v. City of New York, 769
N.Y.S.2d 750, 750 (N.Y. App. Div. 2004); Cold Spring Harbor Area
Civic Ass'n v. Bd. of Zoning Appeals of Huntington, 762 N.Y.S.2d
392, 393 (N.Y. App. Div. 2003); Mercury Capital Corp., 758 N.Y.S.2d
at 843; In re Karmel v. Delfino, 740 N.Y.S.2d 373, 374 (N.Y. App.
Div. 2002); Marinelli Assocs., 705 N.Y.S.2d at 574.
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For what it is worth, we are not alone in reading New
York law this way. In a scholarly and penetrating opinion, the
Eighth Circuit reached the same conclusions on the big issues as we
do. See Rick, 662 F.3d at 1071 (seeing nothing in Tanges that
"overrul[es] Russell Sage" and finding it significant that after
Tanges "numerous New York intermediate appellate court decisions
have continued to cite Russell Sage for the proposition that a
statute-of-limitations-based judgment is claim-preclusive"). Still
undeterred, the trustees cling closely to Cloverleaf, the Second
Circuit opinion mentioned in step two of their four-step argument.
Without citing the full-faith-and-credit statute, Cloverleaf, the
reader will recall, relied on Tanges in holding that New York's
claim-preclusion law is in sync with the "traditional rule," which
is that a limitations dismissal is not on the merits and so is not
claim preclusive — which means that that dismissal has no
preclusive effect in other jurisdictions with longer limitations
periods. Cloverleaf, 572 F.3d at 95. But now the Second Circuit
is not so sure (otherwise why certify the issue to the New York
Court of Appeals?), which puts the kibosh on the trustees'
Cloverleaf-based theory. Also tellingly, even after the Second
Circuit asked the New York Court of Appeals to take up the
question, the New York Appellate Division, citing Russell Sage,
holds fast to the principle that limitations dismissals are "on the
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merits" and claim preclusive. See Hendrickson, 955 N.Y.S.2d at
390; Hae Shang Wang, 947 N.Y.S.2d at 585.
As for us, we believe that existing New York decisions
cast enough light to predict how New York would handle the issue
that the trustees' appeal presents. With our eyes firmly fixed on
the Russell Sage line of cases, we conclude that New York would
grant the limitations-based dismissal here full preclusive effect,
so that the trustees cannot reassert the same claim in another
jurisdiction with a more generous limitations period. The short of
this long analysis, then, is that the district judge rightly
dismissed the trustees' complaint. And that is that.
Final Words
Our work over, we affirm the judgment below in all
respects. Also, we think it appropriate that the parties bear
their own costs on appeal.
So ordered.
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