Olsen v. The Sherry Netherland, Inc.

Background

Rey Olsen, proceeding without a lawyer, sued The Sherry Netherland, Inc., members of its board, other building-related defendants, and attorneys Curtis C. Mechling and Gabriel Sasson. Olsen alleged that the defendants discriminated against Roque De La Fuente, whom Olsen identified as the person who assigned Olsen an interest in the claims. The allegations arose from the Sherry’s rejection of De La Fuente’s application to purchase an apartment after he submitted a bid of $1,275,000 and paid a $100,000 non-refundable deposit.

Olsen asserted ten counts. The first seven repeated housing-discrimination and related federal, New York State, and New York City claims previously brought in a related proceeding. Counts Eight and Nine alleged fraudulent inducement and breach of the implied covenant of good faith and fair dealing concerning the deposit and application process. Count Ten sought a ruling that the use of a report prepared by the defendants’ law firm was pretextual.

In the earlier round of this dispute, the court dismissed some of De La Fuente’s claims and granted the Sherry defendants summary judgment on the remaining claims. The Court of Appeals affirmed that judgment. Olsen had participated in that litigation and later asserted that his assignment allowed him to bring this separate case.

Motions and Report and Recommendation

The Sherry defendants and the Law Firm Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. They principally argued that the claims were barred by res judicata and collateral estoppel. Res judicata, also called claim preclusion, generally prevents a party or a legally connected person from bringing claims that were already decided or could have been brought in an earlier case. Collateral estoppel, also called issue preclusion, prevents relitigation of factual or legal issues that were actually decided and necessary to an earlier judgment.

Magistrate Judge Sarah Netburn recommended granting the dismissal motions. She concluded that Olsen was legally connected to De La Fuente as an assignee, that the first seven claims against the Sherry defendants were essentially identical to claims in the earlier proceeding, and that Counts Eight through Ten either were previously litigated or could have been raised earlier. She also concluded that the factual issues underlying Counts Eight through Ten against the Law Firm Defendants had been actually litigated and resolved in the earlier case. In addition, she concluded that the contract-based claim against the Law Firm Defendants failed because they had not entered into a contract with De La Fuente or Olsen.

Olsen objected to the recommendation. He argued, among other things, that an earlier judge had said he could bring his own action, that the timing and scope of his assignment defeated preclusion, and that the earlier proceeding had not addressed the deposit-related allegations sufficiently.

Court’s Analysis

Judge Gardephe rejected Olsen’s argument that the earlier statement that he could bring his own action prevented application of claim preclusion. The earlier statement concerned whether Olsen was a required party who had to be joined in that case; it did not decide whether future claims would be barred by preclusion doctrines.

The court also held that Olsen and De La Fuente were in privity for purposes of res judicata because Olsen’s interest derived directly from De La Fuente’s legal claims. The court stated that this conclusion applied even assuming the assignment occurred before De La Fuente filed the earlier action.

The court held that the earlier judgment satisfied the requirements for res judicata: it was a final judgment on the merits, issued by a court with jurisdiction, involved De La Fuente and Olsen as legally connected parties, and concerned the same claims or transactions. The court therefore held that all ten claims were barred as against the Sherry defendants.

As to the Law Firm Defendants, the court held that the factual issues concerning the application process, the deposit requirement, and the Stroock Report had been litigated and resolved in the earlier proceeding. The court concluded that Olsen, as De La Fuente’s assignee, was bound by those determinations. It therefore dismissed Count Eight for fraudulent inducement and Count Ten as against the Law Firm Defendants. It also dismissed Count Nine against them because they had not entered into a contract with De La Fuente or Olsen.

Other Rulings

Olsen objected to Magistrate Judge Netburn’s denial of his motions to strike the defendants’ dismissal motions and reply briefs. Judge Gardephe overruled those objections, finding no clear error. The court accepted that one reply had been served late but found that Olsen suffered no prejudice, and it found no error in considering the Sherry defendants’ certificates of service.

Olsen also moved to disqualify Stroock from representing the Law Firm Defendants under the attorney-witness rule. Because the complaint was being dismissed, the court denied that motion as moot.

Disposition

The court adopted the Report and Recommendation in its entirety, overruled Olsen’s objections to the order denying his motions to strike, dismissed the complaint with prejudice, and denied leave to amend because amendment would be futile. The court denied Olsen’s motion to disqualify Stroock as moot and directed the clerk to close the case.