Opinion
Civil Action No. 3:99-CV-0697-D.
August 11, 2000
MEMORANDUM OPINION AND ORDER
The question presented is whether defendant Capital Associates, Inc. ("Capital Associates") as guarantor is entitled to summary judgment on claims asserted by plaintiff Bank One, Texas, N.A. ("Bank One") for liability pursuant to its guaranty of an agreement ("Purchase Agreement") by defendant Capital Associates International, Inc. ("Capital") to purchase certain furniture, fixtures, and equipment ("FFE"), The court holds that it is and therefore grants summary judgment dismissing Bank One's action.
I
The relevant background facts are set out in the court's May 23, 2000 memorandum opinion and order and need not be repeated at length. See Bank One, Tex., N.A. v. Capital Assocs. Int'l, Inc., 2000 WL 680311, at *1-*2 (N.D. Tex. May 23, 2000). In 1991 Bank One entered into the Purchase Agreement with Capital (as seller) and Capital Associates (as guarantor) to acquire the FFE. Bank One sues Capital Associates in its capacity as guarantor to recover a $1,324,715.02 payment that Bank One made under the Purchase Agreement to acquire the FFE from Capital. In its May 23, 2000 decision in this case, the court granted summary judgment dismissing Bank One's claims against Capital on the ground that they were barred by res judicata by the final judgment in Bank One, Texas, N.A. v. Prudential Insurance Company of America, et al., Civil Action No. 3:92-CV-0535-D (the "FFE Case"). See Bank One, 2000 WL 680311, at *8. The court then raised sua sponte that Capital Associates is also entitled to summary judgment as guarantor because Capital as principal is not liable under the Purchase Agreement. Id. The court permitted Bank One to file a responsive brief and Capital Associates to file a reply brief. Id. These briefs have been filed and the matter is ripe for decision.
II
Bank One asserts that Capital Associates is an absolute guarantor and that § 4.9 of the Purchase Agreement extends the obligations of Capital Associates "even when Bank One fails to or delays the enforcement or assertion of any, right, power or remedy conferred on Bank One." P. Br. at 3 (emphasis deleted). Bank One posits that Capital Associates is liable regardless whether Capital can be held liable.
Bank One previously advanced an argument against Capital based on § 8.10 of the Purchase Agreement, a similar provision to § 4.9. See Bank One, 2000 WL 680311, at *6, *7. That provision stated that "[n]o course of dealing between the parties hereto, nor any delay in exercising any rights or remedies under this Agreement or otherwise shall operate as a waiver of any of the rights and remedies of any party hereto." Id. at *7 (quoting Purchase Agreement § 8.10). The court rejected the contention on the following reasoning:
Capital does not assert, however, that Bank One has waived any rights in this case. Capital moves for summary judgment based on res judicata. Bank One has cited no persuasive authority for the proposition that such an agreement alters the res judicata analysis. Accordingly, the court holds that § 8.10 of the Purchase Agreement does not preclude this defense.Id. Consequently, because the court holds below that res judicata bars Bank One's claims against Capital Associates, it rejects this argument as it pertains to Capital Associates' obligations under § 4.9 of the Purchase Agreement.
III
Bank One argues that res judicata does not bar its claims against Capital Associates because Capital Associates' interest was not specifically addressed in the FFE Case. It also maintains that § 4.9 in the Purchase Agreement, in which the parties "agreed `in effect' that Bank One could bring a suit even in the circumstances where it had `failed' or `delayed' to assert its rights set forth in the underlying agreement," brings Bank One within an exception to the transactional test of the RESTATEMENT (SECOND) OF JUDGMENTS. P. Br. at 5. Capital Associates responds that res judicata applies even though it was not a party to the FFE Case because, as guarantor, parent, and sole shareholder of Capital, it was privy to the former suit and bound by the judgment.
Although Capital Associates has not introduced evidence of ownership, this assertion is supported by the record in the extensively litigated FFE Case. If, however, Bank One has grounds to contest this assertion, or contends that Capital Associates' failure to introduce evidence of ownership should deprive it of summary judgment, the court will grant Bank One relief from today's decision, require that Capital Associates submit supporting proof, and permit Bank One to oppose the evidence. The court is omitting this procedure in view of the absence of any indication that this is a matter of genuine dispute (Bank One argues on other grounds that privity is absent) and to avoid undue delay and costs in bringing this case to conclusion.
"[A] final judgment is res judicata not only between parties to the earlier lawsuit, but also their privies." Southmark Props. v. Charles House Corp., 742 F.2d 862, 870 (5th Cir. 1984) (citing Drier v. Tarpon Oil Co., 522 F.2d 199 (5th Cir. 1975) (per curiam)). The Fifth Circuit measures privity "by the existence of an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues." Pollard v. Cockrell, 578 F.2d 1002, 1008 (5th Cir. 1978). The types of relationships contemplated include "estate beneficiaries bound by administrators, presidents and sole stockholders by their companies, parent corporations by their subsidiaries, and a trust beneficiary by the trustee." Id. at 1008-09 (quoting Southwest Airlines Co. v. Texas Int'l Airlines, 546 F.2d 84, 97 (5th Cir. 1977)).
Capital was a party to the FFE Case. Capital Associates is guarantor, parent corporation, and sole shareholder of Capital. Capital Associates, through its privity with Capital, may assert res judicata as a defense based on that suit. See, e.g., Westcott Constr. Corp. v. Fireman`s Fund, 996 F.2d 14, 17 (1st Cir. 1993) (holding that surety is only liable to extent its principal is liable and benefits just as principal would from application of res judicata); Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 966 (3d Cir. 1991) (holding privity between Exxon and its subsidiary allowed subsidiary to assert res judicata as defense to suit based on previous litigation involving Exxon); Southmark Props., 742 F.2d at 870 (applying res judicata to bar claims by plaintiff that was not party to previous bankruptcy proceeding involving corporation, but was "a major stockholder in appellant corporation, its president, and a guarantor on the construction loan, had a strong and direct pecuniary interest in the outcome of the reorganization proceedings, and by his own admission had and exercised substantial control over the litigation on behalf of [the corporation].").
The court rejects, for the same reasons set Out supra at § II, Bank One's argument that Capital Associates agreed in § 4.9 of the Purchase Agreement that, "in effect," Bank One could bring suit anytime, even where it failed or delayed assertion of any rights. Bank One's reliance on the RESTATEMENT (SECOND) OF JUDGMENTS § 26 is also misplaced. Section 4.9 of the Purchase Agreement neither refers to nor effects a right to split claims.
Therefore, the court grants summary judgment dismissing Bank One's action against Capital Associates and enters today a final judgment dismissing this case.
SO ORDERED.