In Haart v. Scaglia[1], Justice Borrok of the New York County Commercial Division partially granted the defendant’s motion to dismiss based on the doctrines of res judicata and collateral estoppel. The Court found that the plaintiff was attempting to relitigate issues and facts that were previously decided in a Delaware case.
Background
This is at least the fourth of five lawsuits filed by Julia Haart (“Haart”) and Silvio Scaglia (“Scaglia”) in Delaware and New York in recent years related to their personal and business divorce. Scaglia is an Italian entrepreneur and investor, and Haart is a designer who became CEO of Elite World Group (EWG), one of Scaglia's companies. They later began dating, got married, and discussed owning and running EWG together. Scaglia formed a holding company called Freedom and transferred his interests in EWG to it. Scaglia then transferred ownership of half of Freedom's common stock to Haart, retaining 100% ownership of Freedom’s preferred stock. Haart alleges that Scaglia fraudulently concealed the existence of these preferred shares from her in connection with this transaction and that she entered into the deal with the understanding that the transfer of the common stock would make her an equal partner with Scaglia. Haart alleges that she only learned about the preferred shares during negotiations for a possible SPAC transaction for EWG, at which point Scaglia allegedly transferred her half of the preferred stock in the company. Haart also alleges that Scaglia unilaterally transferred $1.5 million from Freedom’s bank account and transferred other company property without informing her, in a manner inconsistent with their purported 50-50 partnership. Eventually, the personal and business relationship between the parties soured, leading to the instant action.
The Delaware Action[2]
Prior to the instant action, Haart filed suit against Scaglia in Delaware (the “Delaware Action”) seeking a declaration judgment acknowledging her equal ownership of Freedom with Scaglia, invalidating her removal as a director and CEO of Freedom, affecting a judicial dissolution of Freedom, and asserting claims for breach of fiduciary duty. After a multi-day trial, the Delaware Court concluded (based on the language of the written agreements between the parties and Haart's testimony about promises made by Scaglia to make her a 50% partner) that Haart was not in fact a 50% owner of Freedom. The court rejected Haart's arguments, stating that the purpose of the agreements on which she relied was to restructure the EWG Modeling business and not to transfer ownership of Freedom stock. The Delaware court also found that the stock transfer instrument, on its face, did not transfer 50% of Freedom’s preferred stock to Haart, as the express terms of the transfer gave Haart one share less than 50% of Freedom’s preferred stock.
Discussion
In the instant action, Haart filed a lawsuit, inter alia, seeking a declaratory judgment and asserting claims for fraudulent inducement, fraudulent concealment, breach of contract, breach of fiduciary duty, unjust enrichment, promissory estoppel, and conversion. Haart alleges that Scaglia promised her that she would be a 50% partner in Freedom as compensation for her work as EWG’s CEO, but he intentionally concealed the existence of a preferred class of shares when he transferred 50% of the company’s common stock to her. Haart further alleges that Scaglia breached his promises, converted her property, and benefited from her work without compensating her.
Scaglia sought dismissal of these claims on res judicata and collateral estoppel grounds in light of the earlier decision in the Delaware Action. In her opposition papers, Haart argued that the issues in this case are not identical to those in the Delaware Action because she explicitly concedes here that she is not a 50% owner of Freedom.
Justice Borrok held that most of Haart’s claims were barred by the doctrines of res judicata and collateral estoppel. Citing controlling law from the New York Court of Appeals, the court explained that “[u]nder the doctrine of res judicata, when a claim is brought to a final conclusion, all other claims arising from the same transaction or series of transactions are barred, even if based on different theories or if seeking a different remedy.”[3] As the court further explained, the “doctrine of collateral estoppel precludes a party from litigating an issue which has previously been decided against them in a proceeding in which they had a fair opportunity to fully litigate the point.”[4] Here, the court found that the claims at issue in the Delaware Action involved the same documents, testimony, and evidence, and involved many of the same questions that would be at issue in the instant action, namely, whether Scaglia had promised to make Haart a 50-50 owner of Freedom (a question that the Delaware court ultimately answered in the negative). Thus, even though Haart may have been advancing a slightly different theory to seek recovery in the instant action, Justice Borrok concluded that her claims for fraudulent inducement, fraudulent concealment, breach of contract, and promissory estoppel all arose from the same transaction or occurrence or involved the same questions at issue in the Delaware Action, and dismissed these claims from the case on res judicata and collateral estoppel grounds.
With respect to Haart’s remaining claims for breach of fiduciary duty, conversion, and the declaratory judgement that she owned a 49.9% share of Freedom—all of which were unrelated to Haart’s claim she had been promised a 50% stake in the company—Justice Borrok found that res judicata and collateral estoppel did not apply and that Haart had pled sufficient facts to state a claim for these causes of action and denied the motion to dismiss.
Conclusion
This case is another example of how hesitant courts are to provide litigants with a second bite at the apple, even where a party may be advancing a slightly different theory or version of events in a subsequent action. It should serve as a reminder of the importance of raising all claims, theories, and remedies connected to a given transaction or factual question when litigating a case.
[1] 78 Misc. 3d 1202 (Sup. Ct. NY Cty. Feb. 27, 2023) (“NY Case”).
[2] Haart v. Scaglia and Freedom Holding, Inc. & Elite World Group, LLC, C.A. No. 2022-0145-MTZ.
[3] NY Case at *12 (internal citations removed).
[4] Id. at *13.
