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COMPULSORY COUNTERCLAIM IN FEDERAL ACTION WAS NOT RAISED, FEDERAL CLAIM PRECLUSION RULES PROHIBITED A SUBSEQUENT STATE ACTION BASED UPON THE COUNTERCLAIM (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Garcia, over a two-judge concurring opinion and a dissenting opinion, determined that the failure to raise a compulsory counterclaim in a federal action precluded a subsequent state action based upon the same counterclaim. In the federal action, investors sued Paramount pictures for securities fraud (federal question), common law fraud (state question) and unjust enrichment (state question). Paramount did not make any counterclaims, relying on a contractual waiver of liability (covenant not to sue). The federal district court found the waiver was binding and dismissed the investors’ actions. Then Paramount sued in state court, seeking $8 million in attorney’s fees. The opinions, dealing in depth with the underpinnings of claim preclusion and issue preclusion, as well as the applicability of federal law in this context, cannot be fairly summarized here:

Pursuant to federal principles of claim preclusion — the applicable rules of decision in this case (Semtek, 531 US at 507) — Paramount’s covenant not to sue claim is transactionally related to the investors’ claims in the federal case, amounting to the same “claim” for purposes of res judicata. As such, Paramount’s claim should have been asserted in the parties’ prior federal action. Because it was not, it is now barred. Paramount Pictures Corp. v Allianz Risk Transfer AG, 2018 NY Slip Op 01150, CtApp 2-20-18

CIVIL PROCEDURE (COMPULSORY COUNTERCLAIM IN FEDERAL ACTION WAS NOT RAISED, FEDERAL CLAIM PRECLUSION RULES PROHIBITED A SUBSEQUENT STATE ACTION BASED UPON THE COUNTERCLAIM (CT APP))/RES JUDICATA (COMPULSORY COUNTERCLAIM IN FEDERAL ACTION WAS NOT RAISED, FEDERAL CLAIM PRECLUSION RULES PROHIBITED A SUBSEQUENT STATE ACTION BASED UPON THE COUNTERCLAIM (CT APP))/CLAIM PRECLUSION COMPULSORY COUNTERCLAIM IN FEDERAL ACTION WAS NOT RAISED, FEDERAL CLAIM PRECLUSION RULES PROHIBITED A SUBSEQUENT STATE ACTION BASED UPON THE COUNTERCLAIM (CT APP))/COMPULSORY COUNTERCLAIM  (COMPULSORY COUNTERCLAIM IN FEDERAL ACTION WAS NOT RAISED, FEDERAL CLAIM PRECLUSION RULES PROHIBITED A SUBSEQUENT STATE ACTION BASED UPON THE COUNTERCLAIM (CT APP))

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