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Behrens v. Skelly

decided.: March 16, 1949.


Author: Maris

Before BIGGS, Chief Judge, and MARIS and O'CONNELL, Circuit Judges.

MARIS, Circuit Judge.

Henry Behrens, a resident of New York, instituted an action in the United States District Court for the Western District of Pennsylvania alleging that the defendants, Liggett Spring and Axle Company and Axelton Water Company, Pennsylvania corporations, and J. Scott Skelly, Charles E. Dexter, Jr., Marc J. Sandler and Clarence O. Devore, residents of Pennsylvania, conspired to defraud him of his interest in all the stock and indebtedness of the two above-named corporations hereinafter for convenience called the Liggett stock. He alleged that his rights grew out of a contract made with Gertrud Feuerring and Alfred Schwabacher, not named herein as defendants, under which he became entitled to all the Liggett stock, and he requested the court to order the defendants to transfer the stock to him. The defendants filed a motion for summary judgment raising the defense of res judicata, contending that the plaintiff's claim was barred by a judgment of a New York court entered upon an arbitration award disallowing his claim for damages for breach of the same contract upon which the plaintiff bases his present claim. The lower court sustained the motion and the plaintiff's action was dismissed. The present appeal followed.

The relevant portions of the contract which is here involved and the course of the arbitration proceedings are described in the opinion of the court below. D.C., 76 F.Supp. 75. Suffice it here to say that under the contract it was agreed that Behrens should (1) receive 10% of the Liggett stock, (2) have an option to purchase an additional 10% of the stock, and (3) have the first refusal of Feuerring's and Schwabacher's stock in the event they desired to sell it. The parties further agreed that all disputes which arose between them regarding the application or interpretation of the agreement and the legal relations connected therewith, which could not be settled amicably, should be arbitrated with final effect by a board of arbitration. Behrens received a letter repudiating this contract about one month after it was made. He requested arbitration, which was resisted by Feuerring and Schwabacher. On December 10, 1942 he filed a petition in the Supreme Court of New York for an order to compel arbitration. One month later, on January 14, 1943, Feuerring and Schwabacher transferred all the Liggett stock, through a straw man, to the defendants and others. On March 1, 1943, the Supreme Court of New York ordered that the parties arbitrate their differences and the order was thereafter affirmed by the Appellate Division. Behrens v. Feuerring, 266 App.Div. 727, 41 N.Y.S.2d 925.

The arbitrators designated by the parties failed to choose an umpire. Behrens, therefore, in accordance with the court's order requested the American Arbitration Association to designate an umpire, which was done. In his letter of request to the American Arbitration Association Behrens set forth as his complaint the fact that he was refused (1) the 10% of the Liggett stock under his contract, (2) the additional 10% of the stock under his option, and (3) the balance of 80% of the stock which he contended he had the right to purchase upon the terms of its sale to a third party. He also complained of other breaches of the contract and of the mismanagement of the two corporations. He requested that the arbitrators award him the damages he had suffered as a result of these breaches of contract.

The arbitrators held extensive hearings, took voluminous testimony, and by a majority vote made the following award:

"We, * * * the undersigned, a majority of the (Arbitrators), having been designated in accordance with the Arbitration Agreement entered into by the above named Parties, and dated November 12, 1941, and Court Order dated March 1, 1943, and having been duly sworn according to law, and having duly heard the proofs and allegations of the parties (awards) as follows:

"The Claim of Henry Behrens against Gertrud Feuerring and Alfred Schwabacher for damages for breach of contract is not sustained, and is disallowed."

The award was confirmed by the Supreme Court of New York and judgment was entered thereon, Behrens' corss-motion to vacate the award being denied. 182 Misc. 979, 49 N.Y.S.2d 753. This judgment was affirmed by the Appellate Division, 269 App.Div. 930, 58 N.Y.S.2d 216, and by the Court of Appeals 296 N.Y. 172, 71 N.E.2d 454. A motion for reargument was denied by the latter court. 297 N.Y. 472, 74 N.E.2d 180.

Upon this appeal the plaintiff urges that the New York judgment does not bar his present suit. He argues that the present defendants are not in privity with Feuerring and Schwabacher, the defendants in the New York proceeding, and are not, therefore, entitled to rely upon the estoppel of the judgment which was rendered in favor of the defendants in that proceeding.

In the present case jurisdiction is based on diversity of citizenship. We must, therefore, determine in accordance with the conflict rules of Pennsylvania what law is to be looked to for ascertaining whether the defendants are in privity with Feuerring and Schwabacher.*fn1 In Comment d to ยง 450 of the Restatement, Conflict of Laws, it is said: "The law of the state where a valid judgment if rendered determines who are in privity with the parties to the judgment." We are unable to find that this particular question has been presented to the Pennsylvania courts. We are of opinion, however, that the rule stated in the Restatement comment which we have quoted is the rule which the courts of that states would apply and that it accordingly may be regarded as representing the law of Pennsylvania on the subject. We must, therefore, investigate the law of New York to ascertain whether these defendants are to be deemed privies to the New York judgment upon which they now rely.

Turning to the law of New York we find that the term "privity" denotes a mutual or successive relationship to the same property rights.*fn2 It can hardly be disputed that the defendants have succeeded, by virtue of the transfer of January 14, 1943, to the rights in the Liggett stock held prior thereto by Feuerring and Schwabacher, the parties to the New York judgment. The plaintiff contends, however, that these defendants may not be regarded, under New York law, as in privity with the parties to that judgment, since they acquired their rights by transfer from those parties prior to the entry of the judgment. We do not think that the law of New York supports this contention.

It is true that in some of the New York cases the statement is made that in order to establish privity the succession in interest must have occurred after the date of the rendition of the judgment which is sought to be relied on as an estoppel by or against the successors as privies.*fn3 But in those cases the question whether the date of commencement of the suit rather than the date of judgment was the legally significant date was not in focus. On the contrary, for all that appears, the suits which culminated in the judgments sought to be relied on as estoppels in those cases were themselves in each case begun after the succession in interest had taken place. That these cases did not distinguish the date of judgment from the date of commencement of suit is seen from the following statement of Judge Selden in Campbell v. Hall, 16 N.Y. 575, 581:

"It is plain, therefore, that as the mortgage to the defendant Hall was executed May 1, 1851, and the suits of Consalus v. Linn were not commenced until September thereafter, Hall cannot be concluded by that suit, whatever may have ...

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