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Sacerdote v. Cammack Larhette Advisors, LLC

United States Court of Appeals, Second Circuit

October 1, 2019

Dr. Alan Sacerdote, Dr. Herbert Samuels, Marie E. Monaco, Mark Crispin Miller, Dr. Shulamith Lala Straussner, Dr. James B. Brown, individually and as representatives of a class of participants and beneficiaries on behalf of the NYU School of Medicine Retirement Plan for Members of the Faculty, Professional Research Staff and Administration and the New York University Retirement Plan for Members of the Faculty, Professional Research Staff and Administration, Plaintiffs-Appellants,
v.
Cammack Larhette Advisors, LLC, Defendant-Appellee, Retirement Plan Committee, Richard Bing, Michael Burke, Catherine Casey, Martin Dorph, Sabrina Ellis, Thomas Feuerstein, Andrew Gordon, Patricia Halley, Tim Hesler, Kathleen Jacobs, Marina Kartanos, Ann Kraus, Margaret Meagher, Cynthia Nascimento, Nancy Sanchez, Tina Surh, Linda Woodruff, Maurice Maertens, Joseph Monteleone, RayOquendo, Chris Tang, New York University School of Medicine, NYU Langone Hospitals, NYU Langone Health System, Defendants.

          ARGUED: APRIL 8, 2019

          Appeal from the United States District Court for the Southern District of New York. No. 17 Civ. 8834 – Katherine B. Forrest, Judge.

         Plaintiffs filed an action, which we refer to as Sacerdote I, against New York University ("NYU") alleging violations of ERISA in connection with two retirement plans sponsored by NYU. The district court dismissed most, but not all, of the causes of action against NYU. Plaintiffs then filed this action, which we refer to as Sacerdote II, against a variety of affiliates of NYU and Cammack Larhette Advisors, LLC, alleging substantially the same claims as those in Sacerdote I, including the dismissed claims. Cammack is an independent investment management company that was hired by NYU to provide investment advice on the retirement plans. The district court dismissed all of the claims against all of the NYU- affiliated defendants, as well as Cammack, on the grounds that a plaintiff has no right to maintain two actions on the same subject, against the same parties, at the same time. The district court concluded that even though Cammack and the other defendants in Sacerdote II were not defendants in Sacerdote I, all of them were in privity with defendant NYU in Sacerdote I because they had a sufficiently close relationship with NYU and their interests were aligned with those of NYU. Plaintiffs appealed only the dismissal as to Cammack. We conclude that Cammack and NYU are not in privity, and we now VACATE and REMAND the district court's order as to Cammack.

          Sean E. Soyars (Jerome J. Schlinchter, on the brief), Schlichter Bogard & Denton LLP, St. Louis, MO, for Plaintiffs-Appellants.

          Charles M. Dyke, Nixon Peabody LLP, San Francisco, CA (Kristin Marie Jamberdino, Nixon Peabody LLP, New York, NY, on the brief), for Defendant-Appellee.

          Before: Walker, Calabresi, and Livingston, Circuit Judges.

          JOHN M. WALKER, JR., CIRCUIT JUDGE

         Plaintiffs filed an action, which we refer to as Sacerdote I, against New York University ("NYU") alleging violations of ERISA in connection with two retirement plans sponsored by NYU. The district court dismissed most, but not all, of the causes of action against NYU. Plaintiffs then filed this action, which we refer to as Sacerdote II, against a variety of affiliates of NYU and Cammack Larhette Advisors, LLC, alleging substantially the same claims as those in Sacerdote I, including the dismissed claims. Cammack is an independent investment management company that was hired by NYU to provide investment advice on the retirement plans. The district court dismissed all of the claims against all of the NYU- affiliated defendants, as well as Cammack, on the grounds that a plaintiff has no right to maintain two actions on the same subject, against the same parties, at the same time. The district court concluded that even though Cammack and the other defendants in Sacerdote II were not defendants in Sacerdote I, all of them were in privity with defendant NYU in Sacerdote I because they had a sufficiently close relationship with NYU and their interests were aligned with those of NYU. Plaintiffs appealed only the dismissal as to Cammack. We conclude that Cammack and NYU are not in privity, and we now VACATE and REMAND the district court's order as to Cammack.

         BACKGROUND

         This appeal concerns two actions that were filed in the Southern District of New York and assigned to Judge Katherine Forrest.[1] We refer to the two actions as Sacerdote I (No. 16-cv-06284) and Sacerdote II (No. 17-cv-8834). Plaintiffs in both actions are six professors at New York University ("NYU") or the New York University School of Medicine who participated in two ERISA- governed retirement plans sponsored by NYU ("the plans").

         I. Sacerdote I

         Plaintiffs commenced the first action on August 9, 2016, against NYU only, and alleged breaches of the duties of loyalty and prudence under ERISA based on unreasonable administrative fees, unreasonable investment management fees and performance losses, and failure to monitor unnamed co-fiduciaries.[2]

         On November 9, 2016, plaintiffs amended their complaint to allege breaches of ERISA's duties of loyalty and prudence, as well as its prohibited transaction rules, by: locking the plans into an imprudent investment and recordkeeping arrangement with TIAA-CREF (Counts I and II); causing the plans' participants to pay unreasonable administrative fees to TIAA-CREF and Vanguard (Counts III and IV); and causing the plans' participants to pay unreasonable investment management, marketing, distribution, mortality, and expense risk fees, and incur unreasonable performance losses (Counts V and VI).[3] Plaintiffs also alleged that NYU failed to properly monitor unnamed co-fiduciaries to the plans (Count VII).[4] The amended complaint, like its predecessor, named NYU as the only defendant.

         On August 25, 2017, the district court granted in part and denied in part NYU's motion to dismiss the amended complaint. The district court dismissed all claims except those alleging certain breaches of ERISA's duties of loyalty and prudence in Counts III and V.[5] With respect to Count VII, alleging NYU's failure to properly monitor unnamed co-fiduciaries, the district court found that plaintiffs' failure to name any co-fiduciary rendered the claim materially deficient.[6] However, the district court invited plaintiffs to file for reconsideration if they possessed additional facts to support their co-fiduciary claim.[7]

         While NYU's motion to dismiss was pending, plaintiffs learned that NYU had delegated responsibility for administering the plans to a Retirement Plan Committee (the "Committee"), which consisted of nine officers of NYU and NYU Langone Medical Center. Armed with this new information, and in response to the district court's invitation, plaintiffs moved on September 8, 2017, for reconsideration of the district court's dismissal. The same day, plaintiffs moved for leave to file a second amended complaint, in which they sought to add the Committee and its nine individual members, as defendants, and to add additional facts to bolster the co-fiduciary claim.

         On October 17, 2017, the district court denied plaintiffs' motion for leave to amend.[8] It concluded that plaintiffs failed to demonstrate good cause for why they failed to amend earlier, given that the defendant had disclosed the existence of the Committee and its members in November 2016. Two days later, the district court denied plaintiffs' motion for reconsideration for substantially the same reason.[9]

         II. Sacerdote II

         On November 13, 2017, the same plaintiffs filed a new action- Sacerdote II-alleging substantially the same seven claims alleged in Sacerdote I, including those claims the district court dismissed in its August 25, 2017 decision.[10] The Sacerdote II complaint named as defendants: NYU Langone Hospitals, NYU Langone Health System, the Retirement Plan Committee, and twenty-one past or present members of the Committee. It did not name NYU. The Sacerdote II complaint also added a new claim and specifically identified the Committee and its members as the co-fiduciaries that NYU Langone Hospitals and NYU Langone Health System allegedly failed to monitor.

         On December 20, 2017, the Sacerdote II defendants moved to dismiss the action as duplicative of Sacerdote I. Instead of responding to the motion to dismiss, plaintiffs amended the Sacerdote II complaint on January 10, 2018. The amended complaint removed NYU Langone Hospitals and NYU Langone Health System as defendants and added the New York University School of Medicine ("NYU School of Medicine") as a defendant.[11] The amended complaint, for the first time, also named Cammack Larhette Advisors, LLC ("Cammack"), as a defendant, and alleged that Cammack was a co-fiduciary; that Cammack breached its fiduciary duties under ERISA; and that both Cammack and the NYU School of Medicine, as co-fiduciaries, were liable for the other's breaches. The amended complaint also added new claims.

         On January 24, 2018, all defendants-except for Cammack- (the "NYU defendants") responded to the Sacerdote II amended complaint with a new motion to dismiss. The NYU defendants argued that the Sacerdote II action was duplicative of the Sacerdote I action and was an impermissible attempt to circumvent the district court's rulings in Sacerdote I, which prohibited plaintiffs from amending the complaint to replead the dismissed claims and add the new defendants. Before Cammack responded to the amended complaint, the district court entered an opinion and order dismissing the entire action against the NYU defendants and Cammack as duplicative of Sacerdote I.[12] The district court held that the NYU defendants in Sacerdote II were in privity with NYU in Sacerdote I, and that Sacerdote II, which alleged substantially the same claims and facts as the prior action, was duplicative of Sacerdote I. With respect to Cammack, the district court held that the claims against Cammack "should have been brought by joining Cammack earlier in the Sacerdote I litigation."[13]

         On March 7, 2018, plaintiffs moved for reconsideration of the district court's sua sponte dismissal as to Cammack before Cammack had responded to the amended complaint. Plaintiffs argued they were entitled to assert the same claims against a separate, independent defendant, and that the factors the district court cited to support a finding of privity between the NYU defendants in Sacerdote I and II did not apply to Cammack, an independent entity not related to NYU. In response, the district court ordered Cammack to file a letter motion for dismissal and granted plaintiffs an opportunity to respond, which they did. Cammack argued that like the NYU defendants in Sacerdote II, it was in privity with NYU, the defendant in Sacerdote I, because Cammack and NYU were in contractual privity, the parties' interests were fully aligned, and the defenses of NYU would be fully dispositive of any claims against Cammack, if successful.

         On March 22, 2018, the district court adhered to its judgment dismissing Cammack from Sacerdote II.[14] The district court concluded that Cammack was in privity with NYU because Cammack and NYU's interests were aligned and they had a "sufficiently close relationship . . . to justify preclusion."[15] The district court rejected plaintiffs' argument that "Cammack need not have been added [as a defendant in Sacerdote I] and that they can maintain a separate suit" against Cammack.[16]

         Plaintiffs now appeal the district court's dismissal of Cammack from Sacerdote II.[17]

         DISCUSSION

         We must determine in this case whether the district court correctly applied the privity rule in the context of the rule against duplicative litigation. More precisely, the question is whether the claims against Cammack in Sacerdote II-which are substantially similar to the claims against NYU in Sacerdote I-should have been barred by the rule against duplicative litigation on the basis of Cammack's alleged privity with NYU. We begin with a discussion of the rule against duplicative litigation and the privity rule, and then assess whether the district court properly applied the two rules to conclude that Cammack was in privity with NYU and that Sacerdote II was therefore barred by the rule against duplicative litigation.

         I. The Rule Against Duplicative Litigation

         "As part of its general power to administer its docket, a district court may stay or dismiss a suit that is duplicative of another federal court suit."[18] This is because a plaintiff has "no right to maintain two actions on the same subject in the same court, against the same defendant at the same time."[19] In order for the rule to be properly invoked, however, "the case must be the same."[20] As the Supreme Court recognized over a century ago, "[t]here must be the same parties, or, at least, such as represent the same interests; there must be the same rights asserted and the same relief prayed for; the relief must be founded upon the same facts, and the title, or essential basis, of the relief sought must be the same."[21]

         This rule, known as the rule against duplicative litigation, sometimes termed the rule against claim-splitting, is "distinct from but related to the doctrine of claim preclusion or res judicata."[22] The rule and the doctrine serve similar goals of "foster[ing] judicial economy, " "protect[ing] the parties from vexatious and expensive litigation, " and ensuring the "comprehensive disposition of litigation."[23] As the Seventh Circuit put it, "[c]laim splitting is an aspect of the law of preclusion. Lawyers often use the words 'res judicata' to summon up all aspects of preclusion."[24] Because they are animated by similar policy goals and concerns, we frequently apply principles governing the doctrine of claim preclusion to the rule against duplicative litigation.[25]

         The vital difference between the rule against duplicative litigation and the doctrine of claim preclusion, however, is that the former can only be raised to bar one of two suits that are both still pending; the latter is generally[26] raised, after a prior suit is resolved on the merits, to preclude a party (or its privy) from relitigating claims in a subsequent suit that were or could have been raised in the prior action.[27]

         II. Privity Rule

         Just as we typically do not allow the doctrine of claim preclusion to bind nonparties to a judgment because they have "not had a full and fair opportunity to litigate the claims and issues settled in that suit, "[28] we generally do not apply the rule against duplicative litigation when the defendants in two similar actions are different.[29] Indeed, a plaintiff has "as many causes of action as there are defendants to pursue."[30] As the Restatement (Second) of Judgments states:

When a person suffers injury as the result of the concurrent or consecutive acts of two or more persons, he has a claim against each of them. If he brings an action against one of them, he is required [by the doctrine of claim preclusion] to present all the evidence and theories of recovery that might be advanced in support of the claim against the obligor . . . . But the claim against others who are liable for the same harm is regarded as separate.[31]

         In other words, if a plaintiff suffers the same harm at the hands of two defendants, the plaintiff may institute one suit against one defendant and a separate suit against another defendant alleging that each caused his injury.[32] This is known as the rule against nonparty preclusion.[33]

         There are specific exceptions to this rule, however, that recognize narrow circumstances in which applying a preclusion doctrine to a nonparty is appropriate, fair, and does not violate the nonparty's due process rights. When any of these circumstances is present, the parties are said to be in privity.[34] In the context of claim preclusion, if a party to an action is found to be in privity with a party to a previous action, then the "privy is bound with respect to all the issues that were raised or could have been raised in the previous lawsuit."[35]

         The circumstances sufficient to invoke the privity rule have evolved over time. In 2008, the Supreme Court distilled the current "recognized exceptions" to the rule against nonparty preclusion into six categories: (1) agreements by a nonparty to be bound by the determination of issues in an action between others; (2) certain pre- existing substantive legal relationships based in property law between the nonparty and the party, such as preceding and succeeding owners of property, bailee and bailor, and assignee and assignor; (3) representative suits where the nonparty's interest was adequately represented[36] by a party with the same interests, such as class actions and suits brought by trustees, guardians, and other fiduciaries; (4) when a nonparty has assumed control over the litigation in which the judgment was rendered; (5) when a nonparty is acting as a proxy, agent, or designated representative of a party bound by a judgment; and (6) when a statutory scheme expressly forecloses successive litigation by nonlitigants, so long as the scheme comports with due process.[37]

         Although most of the treatises and cases-including Taylor- that discuss the privity rule do so in the context of claim preclusion, the same principles apply in the context of the rule against duplicative litigation. In The Haytian Republic, the Supreme Court implicitly recognized that the privity rule applies to the rule against duplicative litigation when it stated that the rule may only be invoked when the two pending suits have "the same parties, or, at least, such as represents the same interests."[38] Since then, courts, including ours, have frequently applied principles originating in the doctrine of claim preclusion to the similar context of the rule against duplicative litigation.[39] We can think of no reason-and the parties have presented none-why the principles underlying the privity rule in the context of other preclusion doctrines should not apply equally in the context of the rule against duplicative litigation.

         III. ...


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