James W. Herendeen v. Champion International Corporation
525 F.2d 130 (1975)
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Rule of Law:
A prior judgment does not bar a subsequent action under the doctrine of res judicata if the two suits, despite involving the same parties and seeking similar types of damages, are based on distinct wrongful acts and require different evidence, thereby constituting separate causes of action.
Facts:
- James Herendeen began his employment with Whitaker Paper Company in 1954, which then had a pension trust for its employees.
- In 1963, Whitaker Paper Company merged into Nationwide Papers Incorporated.
- As of July 1, 1965, the Whitaker Plan was merged into the "Retirement Income Plan for Salaried Employees of Certain Subsidiaries of Champion International Corporation" (the Plan), under which Herendeen regularly paid required contributions.
- In September 1967, Herendeen was induced to relinquish his commercial paper accounts and commissions by representations from U.S. Plywood—Champion Papers, Inc. and Nationwide that he would receive a new written employment contract and continue to receive all employment benefits.
- Herendeen voluntarily resigned his position as a paper salesman of Nationwide on May 15, 1969, and subsequently took new employment with a competitor.
- Herendeen, having paid into the Plan fund while employed by Nationwide, sought to obtain payments he alleged the defendants owed him under the Plan.
Procedural Posture:
- James Herendeen instituted a suit in the Supreme Court, New York County, against U.S. Plywood—Champion Papers, Inc., Nationwide, and several officers/employees, alleging fraudulent breach of an oral agreement and seeking damages for lost commissions and pension benefits.
- The New York Supreme Court, per Justice Markowitz, dismissed Herendeen’s complaint for failure to state a claim upon which relief could be granted, finding it alleged an unenforceable 'agreement to agree' barred by the Statute of Frauds.
- The dismissal by the state trial court was affirmed by the New York Appellate Division, 41 A.D.2d 1030, 343 N.Y.S.2d 785 (1973).
- Herendeen subsequently commenced a diversity action in the United States District Court for the Southern District of New York against Champion International Corporation, Nationwide Papers Incorporated, and the trustees and administrator of the Retirement Income Plan, seeking payments under the Plan, injunctive relief, and exemplary damages.
- The District Court, per Judge MacMahon, dismissed Herendeen’s federal complaint, concluding that the matters complained of were barred by res judicata due to the prior state court proceeding.
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Issue:
Is a federal diversity action seeking pension benefits, based on alleged misapplication of plan regulations, barred by res judicata due to a prior state court judgment that dismissed a complaint for fraudulent breach of an unenforceable oral 'agreement to agree' which only mentioned lost pension benefits as an element of damages?
Opinions:
Majority - Waterman, Circuit Judge
No, the prior state court judgment is not res judicata as to the present federal action because the two lawsuits do not involve the same cause of action, despite involving the same parties or their privies. For res judicata to apply, a prior judgment must have been rendered by a court of competent jurisdiction, been a final judgment on the merits, and involved the same cause of action and the same parties or their privies. The court agreed with the lower court that the parties were the same or in privity, but found the causes of action were not identical. The test for determining if causes of action are the same involves evaluating whether a different judgment in the second action would impair or destroy rights or interests established by the first judgment, whether the same evidence is necessary to maintain the second cause of action, and whether the essential facts and issues in the second were present in the first. Herendeen's state court complaint alleged a fraudulent breach of an oral 'agreement to agree' to a new employment contract, with lost pension benefits mentioned only as damages stemming from that alleged fraud. The state court dismissed this suit for failure to state a claim, finding the 'agreement to agree' unenforceable and barred by the Statute of Frauds. In contrast, Herendeen's federal complaint alleges that the defendants misapplied the Plan regulations, wrongfully denying him pre-existing pension benefits to which he claims entitlement based on his years of employment and contributions. The court determined that the wrongful acts alleged in the two complaints are 'quite different.' The state suit concerned a failure to contract as promised, while the federal suit concerns the misapplication of Plan regulations regarding vested pension rights. A judgment in the federal case finding misapplication of Plan regulations would not impair the state court's determination that defendants were under no obligation to contract with Herendeen. Furthermore, the evidence required to sustain the allegations in each complaint would be distinct, as evidence for a new contract in the state case is irrelevant to vested pension rights in the federal case. Citing Secor v. Sturgis, the court emphasized that distinct causes of action arise out of different acts or contracts. While Herendeen could have joined both claims in the state suit, he was not compelled to do so. Herendeen has not yet had his opportunity to litigate his specific claim regarding pension rights.
Analysis:
This case provides critical clarification on the application of the res judicata doctrine, particularly the 'same cause of action' element, which is frequently litigated. It demonstrates that the mere overlap in the type of damages sought or the parties involved does not automatically trigger claim preclusion if the underlying legal theories and the specific 'wrongful acts' alleged are fundamentally distinct. By establishing a multi-factor test focusing on the impairment of prior judgments, the necessary evidence, and the essential facts and issues, the court provides a structured approach for future courts to distinguish between genuinely separate claims and mere re-litigations of settled issues. This ruling reinforces the principle that plaintiffs should have a full opportunity to litigate distinct legal grievances, even if related, and prevents a too-broad application of res judicata from prematurely barring potentially valid claims.
