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Dismissal of Federal Action Precluded Related Action in State Court—Res Judicata, Privity under Res Judicata Doctrine, Effect of Initial Forum Choice, and “First-in-Time” Rule Discussed

In a full-fledged opinion by Justice Moskowitz, the First Department determined that Supreme Court should have dismissed the state complaint because the dismissal of the related federal complaint controlled under the doctrine of res judicata.  The lawsuit was brought by the insurer (Syncora) of mortgage-backed securities issued by the defendant (JP Morgan [formerly known as Bear Stearns]). Syncora first sued in federal court where the action was dismissed based on the findings that the fraud allegations Syncora sought to add to the complaint were untimely and Syncora did not have standing because it was neither a buyer or a seller of the relevant securities.  Syncora then filed the state action asserting the same claims rejected as untimely by the federal court.  The opinion addresses several distinct issues: (1) the flexibility of the concept of “privity” in applying the doctrine of res judicata to the parties and “those in privity” with the parties; (2) a finding of “privity” can be based upon the plaintiff’s allegations about the relationship between a party and another entity; (3) a party which makes a strategic decision to first bring an action in one jurisdiction “is bound by the effects of the path it charted…”; and (4) dismissal of the complaint pursuant to CPLR 3211(a)(4) in favor of the earlier-filed federal action was warranted under New York’s “first-in-time” rule.  Syncora Guar Inc v JP Morgan Sec LLC, 2013 NY Slip Op 05602, 1st Dept, 8-13-13

 

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