07-2673-cv
Giannone v. York Tape & Label, Inc.



                                  UNITED STATES COURT OF APPEALS
                                     FOR THE SECOND CIRCUIT

                                                  August Term, 2008

(Argued: November 5, 2008                                                         Decided: December 2, 2008)

                                                Docket No. 07-2673-cv

NEIL J. GIANNONE ,

                  Plaintiff-Appellant,

                  v.

YORK TAPE & LABEL, INC .,

                  Defendant-Appellee.


Before: CABRANES and HALL, Circuit Judges, and GLEESON , District Judge.*

         Plaintiff-appellant Neil J. Giannone appeals from a judgment of the United States District

Court for the Eastern District of New York (Joseph F. Bianco, Judge) dismissing his complaint against

York Tape & Label, Inc., his former employer, on the basis of res judicata. We agree with the District

Court that res judicata bars this action because (1) Giannone cannot avail himself of the “declaratory

judgment exception” to the doctrine of res judicata because he sought—and obtained—equitable as

well as declaratory relief in a prior state action, and (2) Giannone could have raised the claims pressed

in this litigation in his prior state action.

         Affirmed.



         *
          The Honorable John Gleeson, United States District Judge for the Eastern District of New York, sitting by
designation.

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                                         JOHN G. POLI, Northport, NY, for Plaintiff-Appellant Neil J.
                                               Giannone.

                                         WILLIAM J. SHIN , Benesch, Friedlander, Copkan & Aronoff,
                                               LLP, Cleveland, OH, and Thomas M. Lancia, New York,
                                               NY, on the brief, for Defendant-Appellee York Tape & Label,
                                               Inc.

PER CURIAM :

        Plaintiff-appellant Neil J. Giannone appeals from a judgment of the United States District

Court for the Eastern District of New York (Joseph F. Bianco, Judge) dismissing his complaint against

York Tape & Label, Inc., his former employer, on the basis of res judicata. See Giannone v. York Tape &

Label, Inc., No. 06-CV-6575, 2007 U.S. Dist. LEXIS 37572 (E.D.N.Y. May 23, 2007).

        In 2004, Giannone filed a complaint (the “State Action”) in New York Supreme Court, Suffolk

County, against York Tape & Label in order to have a non-competition covenant declared

unenforceable under Pennsylvania law, and to obtain an injunction barring the enforcement of that

covenant. The state court granted summary judgment in favor of Giannone on September 21, 2005,

and it awarded him declaratory and injunctive relief. One year later, Giannone filed another suit against

York Tape & Label in state court, alleging the same facts as in the earlier action, but pressing claims

under New York State law and seeking damages. York Tape & Label removed the second action to

federal court on the basis of diversity, and the District Court dismissed that action because “[having]

sought an injunction in addition to declaratory relief in the first action, plaintiff is barred in this second

lawsuit from seeking further coercive relief, such as damages, by the doctrine of res judicata.” Giannone,

2007 U.S. Dist. LEXIS 37572, at *18.

        On appeal, Giannone contends that the State Action does not bar the instant litigation because

of (1) the exception to res judicata for declaratory judgment actions and (2) the different claims pressed

in this suit. Neither of these grounds defeat the application of res judicata to the instant action.


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        When “determin[ing] the effect of a state court judgment, federal courts, including those sitting

in diversity, are required to apply the preclusion law of the rendering state.” Conopco, Inc. v. Roll Int’l,

231 F.3d 82, 87 (2d Cir. 2000). Under New York law, a “final judgment on the merits of an action

precludes the parties or their privies from relitigating issues that were or could have been raised in that

action.” Maharaj v. BankAmerica Corp., 128 F.3d 94, 97 (2d Cir. 1997) (internal quotation marks

omitted). An exception to this rule exists where “the prior action involved only a request for

declaratory relief.” Harborside Refrigerated Servs. Inc. v. Vogel, 959 F.2d 368, 372 (2d Cir. 1992); see also id.

at 373 (holding the same). In such cases, “the preclusive effect of the declaratory judgment is limited to

the subject matter of the declaratory relief sought[,] [and] [t]he plaintiff or defendant may continue to

pursue further declaratory or coercive relief.” Id. at 372.

        Arguing that the declaratory judgment exception to res judicata applies to this action, Giannone

understandably relies on Lynch v. Bailey, 304 N.Y. 669 (1952) (“Lynch IV”), which at first blush appears

to support his position. However, a careful reading of that case in light of later decisions of the New

York Court of Appeals and other New York State courts convinces us that Lynch IV is no longer

followed.

        In Lynch IV, the New York Court of Appeals decided that it was not error to strike the

defendant’s res judicata defense, but it did not explain the basis for its ruling. The lower court opinions

it affirmed set forth two reasons. First, the trial court held that “the right to damages does not appear

to be so inseparable from the right to equitable relief that [the] failure to demand damages when the

plaintiff secured the injunction now bars his claim.” Lynch v. Bailey, 99 N.Y.S.2d 585, 587 (Sup. Ct.

N.Y. County 1950) (“Lynch II”). Second, both the trial court and the Appellate Division, the

intermediate appellate court, relied on the fact that judges have broad discretion to refuse even to

consider claims for declaratory relief—and Lynch’s first case sought declaratory relief as well as an


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injunction. See id.; Lynch v. Bailey, 108 N.Y.S.2d 134, 135 (1st Dep’t 1951) (“Lynch III”); Lynch v. Bailey,

86 N.Y.S.2d 783, 785 (Sup. Ct. N.Y. County 1949) (“Lynch I”) (clarifying that plaintiff sought

declaratory and equitable relief in his original complaint). As both of the lower courts pointed out,

judges from whom declaratory relief is requested are free to “relegate the parties to an independent

action” for other forms of relief. Lynch III, 108 N.Y.S.2d at 135; see also Lynch II, 99 N.Y.S.2d at 587.

According to these decisions, because courts have such wide discretion to deny relief in declaratory

judgment actions, those actions cannot have preclusive effect on future actions for damages or

equitable relief. See Lynch II, 99 N.Y.S.2d at 587; Lynch III, 108 N.Y.S.2d at 135.

        The first of the rationales set forth in the lower court decisions in Lynch was not correct. Just

three years later, in Maflo Holding Corp. v. S. J. Blume, Inc., the New York Court of Appeals reiterated the

unequivocal rule that a party who seeks injunctive relief must also seek damages in the same action or

be precluded thereafter from suing for damages. 308 N.Y. 570, 574-75 (1955) (citing Inderlied v. Whaley,

32 N.Y.S. 640 (4th Dep’t 1895), aff’d, 156 N. Y. 658 (1898)); see id. at 575 (“[If a plaintiff seeks equitable

relief, New York law] compels [that] plaintiff to seek in the equity proceeding whatever damages he

may be entitled to and, if he made no demand for damages or failed to introduce proof as to damages,

he is precluded from thereafter maintaining an action at law to recover damages.”).

        The second rationale provided by the lower courts in Lynch is also inescapably flawed. It can

scarcely be said that Giannone could be “relegated” to an independent action seeking relief beyond a

declaration of rights when he sought—and obtained—such additional relief (in the form of an

injunction) in the first case. Had the state court denied Giannone’s request for equitable relief as a

matter of discretion—and thereby not ruled on its merits—the decision of the state court might not

have preclusive effect on a subsequent action. But that is not the case here. Because Giannone sought

equitable relief against York Tape & Label and obtained that relief through a “judgment on the merits,”


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he is subject to the holding of Maflo and precluded from seeking damages here. See Maflo, 308 N.Y. at

575; see also Gross v. Tannen, 675 N.Y.S.2d 49, 49 (1st Dep’t 1998) (“Nothing prevented plaintiff from

joining his claims for damages against these defendants with his claim for equitable relief against them

in the prior action. Accordingly, the order in the prior action . . . constitutes res judicata barring the

instant action seeking different relief based on the same transaction or series of transactions.” (citations

omitted)).

        The foregoing is consistent with the declaratory judgment exception to ordinary res judicata

principles set forth in the Restatement (Second) of Judgments, which New York recognizes. See

Harborside Refrigerated Servs., 959 F.2d at 373 (“[B]oth federal and New York State law recognize the

declaratory judgment exception articulated in the Restatement.”). Section 33 of the Restatement of

Judgments limits the preclusive effect of a declaratory judgment action to the “matters declared” and to

any issues “actually litigated . . . and determined,” but the commentary makes clear that the limit applies

“[w]hen a plaintiff seeks solely declaratory relief.” Restatement (Second) of Judgments § 33 & cmt. c

(1982). Because Giannone’s State Action sought injunctive relief as well as a declaratory judgment, he

may not avail himself of the “declaratory judgment exception” to the doctrine of res judicata.

        Giannone also argues that because he did not “plead any tortious conduct on the part of the

defendant, and never sought or obtained monetary relief in [the State Action], the res judicata doctrine

should not [constitute] a bar to [the instant action].” Appellant’s Br. 15. “Under New York’s

transactional approach to [res judicata], once a claim is brought to a final conclusion, all other claims

arising out of the same transaction or series of transactions are barred, even if based upon different

theories or if seeking a different remedy.” In re Derek Josey, 9 N.Y.3d 386, 389-90 (2007) (internal

quotation marks omitted). The torts pressed in the District Court arise from the same non-competition

agreement at issue in the State Action, and Giannone has identified no barrier—nor are we aware of


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any—that would have prevented him from litigating these claims in the State Action. Because these

state torts “could have been raised and decided in [the] previous suit,” Jefferson Towers, Inc. v. Pub. Serv.

Mut. Ins. Co., 600 N.Y.S.2d 41, 43 (1st Dep’t 1993), the doctrine of res judicata bars Giannone from

litigating them now.

        Accordingly, we agree with the District Court’s determination that the doctrine of res judicata

bars this action because (1) Giannone, having sought—and obtained—equitable as well as declaratory

relief in a prior state action, cannot avail himself of the “declaratory judgment exception” to the

doctrine of res judicata, and (2) Giannone could have raised the claims pressed in this litigation in the

prior state action. The judgment of the District Court is AFFIRMED.




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