UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1076
APPAREL ART INTERNATIONAL, INC.,
Plaintiff, Appellant,
v.
AMERTEX ENTERPRISES LTD., ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. P rez-Gim nez, U.S. District Judge] ___________________
____________________
Before
Selya, Circuit Judge, _____________
Campbell, Senior Circuit Judge, ____________________
and Lagueux,* District Judge. ______________
____________________
Freddie P rez-Gonz lez with whom Woods, Rosenbaum, Luckeroth ______________________ ___________________________
& P rez-Gonz lez was on brief for appellant. ________________
Eugene F. Hestres with whom Bird, Bird & Hestres was on __________________ _____________________
brief for appellees.
____________________
February 17, 1995
____________________
____________________
* Of the District of Rhode Island, sitting by designation.
LAGUEUX, District Judge. This matter is before the ______________
Court on appeal from a decision rendered by Judge Juan M. P rez-
Gim nez in the United States District Court for the District of
Puerto Rico. Applying Puerto Rico's res judicata doctrine, Judge
P rez-Gim nez dismissed appellant Apparel Art International,
Inc.'s ("Apparel") claims of fraudulent conveyance, depletion of
corporate assets, and alter ego as contained in Apparel's
Supplementary Pleadings in Aid of Execution of Judgment. Those
pleadings were filed in supplementary proceedings in which
Apparel sought to enforce an arbitration award rendered against
Amertex Enterprises Ltd. ("Amertex") by American Arbitration
Association ("AAA") arbitrators and confirmed by the district
court.
I. BACKGROUND FACTS I. BACKGROUND FACTS
A. The Parties A. The Parties
Apparel is a Delaware corporation that manufactures
clothing at a plant located in Puerto Rico. Amertex is a New
York corporation with offices in Puerto Rico. Leo Jacobson is a
resident of Puerto Rico and is president and chairman of the
board of directors of Amertex. Harriet Jacobson is a resident of
Puerto Rico and is the wife of Leo Jacobson. Leo and Harriet
Jacobson are the sole stockholders of Amertex. Co-appellee, D.J.
Manufacturing Co. ("D.J."), is a Puerto Rico corporation. Co-
appellee, Diego Jacobson, is a resident of Puerto Rico and is the
son of Leo and Harriet Jacobson. Diego Jacobson is president of
D.J. and chairman of its board of directors.
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B. The Contractual Relationship Between Apparel and Amertex B. The Contractual Relationship Between Apparel and Amertex
In 1985, Apparel entered into a subcontract with
Amertex under which Apparel was to manufacture certain components
of "Chempro", a camouflage chemical protective suit for military
use. Amertex had entered into a contract (the "prime contract")
to supply Chempro suits to the United States Department of
Defense. This case began when Apparel initiated an arbitration
proceeding claiming that Amertex had breached the subcontract. A
detailed review of the numerous legal proceedings in this matter,
beginning with the arbitration, is a necessary prelude to our
determination of the res judicata question at issue on appeal.
C. The Arbitration C. The Arbitration
On November 17, 1986, Apparel initiated arbitration
proceedings against Amertex before the AAA in San Juan, Puerto
Rico. The dispute was brought before the AAA pursuant to an
arbitration clause contained in the subcontract. As the only
signatories to the subcontract, Apparel and Amertex were the only
parties to the arbitration. In its Statement of Claims filed
with the AAA on July 29, 1987, Apparel alleged that Amertex had
engaged in the following misconduct: 1) Amertex breached the
subcontract;1 2) Amertex illegally attached Apparel's assets
after falsely alleging that Apparel breached the subcontract; 3)
Amertex breached certain modifications of the subcontract; 4)
____________________
1 Apparel alleged that Amertex breached the subcontract by
failing to comply with delivery schedules and pick-ups, failing
to file claims or bring about restitution, and failing to make
payments.
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Amertex fraudulently and negligently performed under the
subcontract; 5) Amertex failed to pay an increase in the unit
price; and 6) Amertex fraudulently induced Apparel to enter into
the subcontract. On August 6, 1987, Apparel filed a Supplement
to its Statement of Claims alleging that Amertex engaged in
fraudulent conduct that constituted a pattern of racketeering
activity under the Racketeer Influenced and Corrupt Organizations
Act ("RICO"), 18 U.S.C. 1961-1968 (1988 & Supp. V 1993).2 On
September 16, 1987, the arbitrators dismissed Apparel's RICO
claims because under the arbitration clause they lacked subject
matter jurisdiction to hear those claims. Apparel did not seek
judicial review of that dismissal. On June 27, 1989, after
nearly two years of hearings, the arbitrators awarded $387,994.00
to Apparel. The arbitrators further decided that the costs of
arbitration were to be borne equally between the parties.
D. Apparel I - The District Court Action Before Judge P rez- D. Apparel I - The District Court Action Before Judge P rez-
Gim nez Gim nez
On September 26, 1989, Apparel filed this lawsuit,
Civil Action No. 89-1272 (PG) (hereinafter "Apparel I"), against
Amertex and the AAA as co-defendants in the United States
District Court for the District of Puerto Rico. The case was
assigned to Judge P rez-Gim nez. Apparel's complaint sought to
set aside the arbitration award under the procedures authorized
____________________
2 Among the conduct that Apparel alleged to violate RICO was:
Amertex's fraudulent inducement of Apparel to enter into the
subcontract; bribery of government officials in order to secure
the prime contract; and mail and wire fraud in the submission of
false information to the government.
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by the Federal Arbitration Act, 9 U.S.C. 10-11 (1988 & Supp. V
1993). Apparel alleged that the arbitration process was
arbitrary and the award was insufficient. Apparel prayed that
the court set aside the arbitration award and resubmit the merits
of the case for resolution by the court. In the alternative,
Apparel prayed that the court remand the case to the arbitrators
so the award could be clarified.
Amertex moved to dismiss the complaint on the grounds
that the action was time-barred because Apparel failed to provide
required notice. On March 26, 1990, Apparel voluntarily
consented to the dismissal, without prejudice, of its claim
against the AAA. Apparel also moved to convert the suit against
Amertex to an action to enforce the arbitration award pursuant to
the Federal Arbitration Act, 9 U.S.C. 9 (1988). Judge P rez-
Gim nez granted Apparel's motion on April 10, 1990, and entered
an order dismissing the action as to the AAA, confirming the
award against Amertex, and entering judgment for Apparel in the
amount of $384,994.00 plus interest, costs, and attorneys' fees.
The court subsequently, on the motion of Amertex, modified the
judgment to remove the imposition of court costs and attorneys'
fees against Amertex.
After entering judgment on the arbitration award, the
district judge permitted Apparel to conduct post-judgment
discovery in supplementary proceedings so that Apparel could
execute the judgment against Amertex. In January of 1991,
Apparel moved the court to compel production of documents and for
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sanctions. Apparel alleged that it was investigating the
transfer of assets from Amertex to D.J., a company which Apparel
suspected to have been created for the purpose of defrauding
Amertex's creditors. Amertex opposed the motion on the grounds
that Apparel's discovery request was onerous. On January 8,
1991, Apparel moved for execution of the judgment against Amertex
because Amertex had not paid the judgment. Apparel requested the
court to execute the judgment via attachment or garnishment
against a balance owed by D.J. to Amertex. In its opposition to
this motion, Amertex argued that D.J. was not a party to the
action and Apparel had not filed notice of the motion with D.J.,
and requested a show cause hearing to determine whether D.J.
should be subject to an order to execute the judgment. On
January 10, 1991, Amertex also requested that the court issue a
protective order insulating Amertex from further discovery
requests. On January 24, 1991, the district court denied
Amertex's request for a protective order, ordered the execution
of the judgment, and ordered attachments and garnishments to be
served on Amertex's debtors - including a writ of attachment
ordering D.J. to pay to Apparel any sums that D.J. owed to
Amertex.
In response to Apparel's Motion Requesting an Order for
Garnishment of Funds to be served on the United States
Government, on January 31, 1991, Amertex filed an "acquiescence"
to Apparel's motion for garnishment and requested that the court
issue a protective order staying Apparel from filing additional
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motions for execution of the judgment. In its opposition to
Amertex's request for a protective order, Apparel argued that
Amertex's claim against the government was uncertain and that the
proceeds from that claim had already been assigned by Amertex to
the Banco Popular de Puerto Rico. Apparel alleged that Amertex
had informed Apparel it was unable to satisfy the judgment
because it had no assets. Apparel further alleged that through
post-judgment discovery it had discovered evidence of illegal
transfers of assets, conspiracy, alter ego, and the misuse of
corporate funds by Leo Jacobson and others. On May 8, 1991,
Judge P rez-Gim nez denied Amertex's request for a protective
order, noting that Amertex had not yet satisfied the money
judgment owed to Apparel.
E. Apparel II - The District Court Action Before Judge Fust E. Apparel II - The District Court Action Before Judge Fust
While the enforcement proceedings were ongoing before
Judge P rez-Gim nez, on May 31, 1990, Apparel initiated a
separate civil action in the United States District Court for the
District of Puerto Rico. In that case, Civil Action No. 90-1756
(JAF) (hereinafter "Apparel II"), assigned to Judge Jose Antonio
Fust , Apparel made several claims under RICO against Amertex, as
well as D.J., Leo Jacobson, Harriet Jacobson, Diego Jacobson, and
Donald Sherry.3 These were essentially the same allegations
that had been dismissed by the arbitrators for lack of subject
matter jurisdiction. Apparel alleged that Amertex engaged in
bribery of government officials and submitted false information
____________________
3 Donald Sherry was a government contracting officer.
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to the government in its effort to secure the Chempro contract.
In addition, Apparel alleged that both during the arbitration
hearings and after the award was rendered, Leo Jacobson,
conspiring with Diego Jacobson, diverted Amertex's assets to D.J.
in order to avoid satisfying the arbitration award. These
allegations were made prior to the post-judgment discovery
conducted in connection with the enforcement proceeding pending
before Judge P rez-Gim nez, but raised new fraudulent conveyance
and alter ego claims which were never brought before the
arbitrators. On March 4, 1991, Apparel moved to amend its
complaint, further elaborating its fraudulent conveyance claims
and seeking to add a new defendant, one Ricardo Charaf.4
Apparel alleged that its amended complaint was based on evidence
obtained through post-judgment discovery conducted in the
enforcement action before Judge P rez-Gim nez. On April 1, 1991,
the co-defendants argued in their opposition to Apparel's motion
for leave to amend that Apparel's allegations of fraudulent
conveyance should be submitted in the enforcement action then
pending before Judge P rez-Gim nez, and not in Apparel II.
On August 21, 1991, Judge Fust dismissed Apparel's
claims as contained in the amended complaint. He held that res
judicata precluded litigation of Apparel's RICO claims pertaining
to the parties' subcontractual relationship because they could
and should have been raised before Judge P rez-Gim nez in Apparel
I before final judgment was entered on the arbitration award.
____________________
4 Ricardo Charaf was Vice-President of Amertex.
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Accordingly, he ruled that further litigation concerning the
damages suffered by Apparel under the subcontract was barred by
res judicata. Although Judge Fust also dismissed Apparel's
fraudulent conveyance claims, in so doing he noted that those
allegations should be raised in the enforcement action before
Judge P rez-Gim nez. Otherwise, multiple judgments might be
rendered on the same claims. Accordingly, Judge Fust dismissed
Apparel's fraudulent conveyance claims "without prejudice to any
legitimate execution of judgment motions which plaintiff may seek
to file before Judge P rez-Gim nez." Apparel Art Int'l, Inc. v. _______________________
Jacobson, Civil No. 90-1756 (JAF) at 7 (D.P.R. Aug. 21, 1991). ________
Pursuant to this order, a copy of the dismissal order was filed
in the enforcement proceeding then pending before Judge P rez-
Gim nez.
Apparel then appealed Judge Fust 's dismissal to this
Court. A panel of this Court affirmed Judge Fust 's dismissal of
the action, but did not base its decision on res judicata
principles. Apparel Art Int'l, Inc. v. Jacobson, 967 F.2d 720, ________________________ ________
722 (1st Cir. 1992). Rather, it was held that Apparel's
allegations failed to establish a pattern of illegal conduct
sufficient to support a claim under RICO. Id. at 724. ___
F. Apparel's Supplementary Pleadings in Aid of Execution of F. Apparel's Supplementary Pleadings in Aid of Execution of
Judgment Judgment
On October 29, 1992, Apparel filed a Motion to
Supplement Allegations as Part of Supplementary Proceedings
before Judge P rez-Gim nez. In its motion, Apparel alleged that
while conducting post-judgment discovery, Apparel learned that
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Amertex had concealed and diverted its assets in concert with co-
appellee D.J. and had thus impeded execution of the judgment.
Therefore, Apparel initiated post-judgment supplementary
proceedings in an effort to satisfy the judgment. Accordingly,
also on October 29, Apparel filed Supplementary Pleadings in Aid
of Execution of Judgment. The supplementary pleadings named
Amertex, D.J., Leo Jacobson, Harriet Jacobson, and Diego Jacobson
as co-defendants involved in Amertex's effort to avoid paying the
judgment. Apparel alleged the following unlawful conduct: 1)
Amertex's corporate assets had been depleted; 2) Amertex's assets
were fraudulently conveyed to co-appellee D.J.; and 3) Amertex
and D.J. were alter egos of their presidents, Leo Jacobson and
Diego Jacobson, respectively.5 Apparel sought only two
remedies. First, Apparel sought to execute the judgment against
the assets that were fraudulently conveyed from Amertex to D.J.
Second, Apparel prayed that on its depletion of corporate assets
and alter ego claims, all co-defendants be held jointly and
severally liable for the judgment. The co-defendants did not
oppose Apparel's attempt to file a supplementary pleading, and on
November 11, 1992, the district court granted Apparel's motion to
supplement its allegations as part of the supplementary
proceeding in aid of execution of judgment. On January 29, 1993,
the district court ordered D.J. to appear at a show cause hearing
____________________
5 These are substantially the same allegations as those made
before Judge Fust in Apparel II and dismissed by the court
without prejudice to the consideration of them in the enforcement
action before Judge P rez-Gim nez.
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and demonstrate why the asset transfers from Amertex were not
illegal and should not be rendered null and void so that Apparel
could execute the judgment directly against the transferred
assets. The order also directed Apparel to offer proof of its
alter ego allegations sufficient to show that liability could be
imposed against the co-defendants.
On April 12, 1993, co-appellees D.J. and Diego Jacobson
filed a Motion to Dismiss, or in the Alternative for Summary
Judgment on the grounds that, due to Judge Fust 's order
dismissing Apparel's claims in Apparel II, res judicata barred
litigation of Apparel's claims in the supplementary proceedings.
D.J. and Diego Jacobson further argued that the supplementary
pleadings were procedurally defective under Fed. R. Civ. P. 69.
The motion was opposed by Apparel. On August 3, 1993, Judge
P rez-Gim nez granted the motion to dismiss after concluding that
Apparel's claims were precluded under Puerto Rico's res judicata
doctrine. He reasoned that the underlying purpose of Apparel's
claims in the supplementary proceedings was to raise claims of
fraudulent conduct that had been previously dismissed by Judge
Fust in Apparel II and affirmed by this Court. Judge P rez-
Gim nez reasoned that there was no difference between the persons
or claims in the enforcement action and those in Apparel II, and,
thus, concluded that Apparel had merely reworked its legal
theories in an effort to secure a more favorable judgment.
On August 13, 1993, Apparel moved the court to amend
and reconsider its order of dismissal. Judge P rez-Gim nez
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denied the motion on October 12, 1993, and judgment was entered
on November 30, 1993. Apparel appealed the district court's
dismissal to this Court on December 17, 1993.
After carefully considering the record, the parties'
briefs, and the parties' oral arguments, this Court holds that
res judicata does not bar Apparel's claims as contained in the
supplementary pleadings. Therefore, we reverse the dismissal
entered by the court below and remand the case for further
proceedings.
II. DISCUSSION II. DISCUSSION
The decision appealed from is that res judicata barred
relitigation of the claims as contained in Apparel's
Supplementary Pleadings in Aid of Execution of Judgment. Judge
P rez-Gim nez reasoned that, under Puerto Rico's version of the
res judicata doctrine, there was no difference between the claims
raised in Apparel's supplementary pleadings and those dismissed
by Judge Fust in Apparel II - a dismissal that was affirmed by
this Court of Appeals. We review de novo the district court's _______
dismissal of Apparel's claims as contained in the supplementary
pleadings. See Kale v. Combined Ins. Co. of America, 924 F.2d ___ ____ _____________________________
1161, 1165 (1st Cir. 1991), cert. denied, 112 S. Ct. 69 (1991) ____________
(Court of Appeals ordinarily reviews trial courts' rulings on
motions to dismiss de novo). _______
Apparel's supplementary pleadings were brought in
supplementary proceedings pursuant to Fed. R. Civ. P. 69(a) to
aid in the execution of the district court's judgment in Apparel
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I. Through that judgment, the court confirmed the award of the
AAA arbitrators. At the outset we must consider whether federal
res judicata principles are applicable to this case or whether,
as the district court concluded, Puerto Rico's res judicata
principles should guide the analysis.
Under Fed. R. Civ. P. 69(a), supplementary proceedings
in aid of execution of a judgment are to be conducted "in
accordance with the practice and procedure of the state in which
the district court is held . . . ." However, a district court
must apply only those provisions of state law which specifically
govern the enforcement of judgments. 12 Charles A. Wright &
Arthur R. Miller, Federal Practice and Procedure 3012 (1973). _______________________________
The district court need not follow general state procedural law.
Id. Therefore, because Puerto Rico's res judicata doctrine is ___
not uniquely applicable to supplementary proceedings, Fed. R.
Civ. P. 69(a) does not compel the application of Puerto Rico's
principles of res judicata in this case.6
Plainly, the district court was mistaken when it
applied Puerto Rico's preclusion law in dismissing Apparel's
supplementary pleadings. Federal law principles of res judicata
govern the preclusive effect of a prior federal court's judgment
on a subsequent action brought in federal court. In re El San _____________
____________________
6 Puerto Rico's res judicata doctrine is codified in P.R. Laws
Ann. tit. 31, 3343 (1991). This is a general provision of
Puerto Rico's law of civil procedure which is not specifically
applicable to supplementary proceedings in aid of execution of a
judgment.
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Juan Hotel Corp., 841 F.2d 6, 9 (1st Cir. 1988).7 In this case, ________________
the Court must analyze the preclusive effects of the prior
judgments rendered by the district court in Apparel I and Apparel
II to determine whether they bar litigation of Apparel's
supplementary pleadings. Because both of these earlier judgments
were rendered by a federal court, the preclusive effect of those
judgments in this federal case is governed by federal res
judicata principles.8 Accordingly, federal principles of res
judicata, not those of the Commonwealth of Puerto Rico, are
controlling here with respect to this Court's de novo review of _______
the district court's dismissal of Apparel's supplementary
pleadings.
Under the federal law of res judicata,9 a final
____________________
7 This Court has held that where a federal court has subject
matter jurisdiction under diversity, federal law governs the
preclusive effect of prior federal court judgments. Johnson v. _______
SCA Disposal Servs., Inc., 931 F.2d 970, 974 (1st Cir. 1991). __________________________
Similarly, federal law governs the res judicata effects of a
federal court judgment in a prior federal question case on a
subsequent case that presents a federal question to a federal
court. See Blonder-Tongue Lab., Inc. v. University of Ill. ___ __________________________ ___________________
Found., 402 U.S. 313, 324 n.12 (1971); Gonz lez v. Banco Cent. ______ ________ ___________
Corp., 27 F.3d 751, 755 (1st Cir. 1994). The policy underlying _____
the application of federal res judicata principles is that the
federal courts must have the power to define the effect of their
own judgments. See Johnson, 931 F.2d at 974 (quoting Kern v. ___ _______ ____
Hettinger, 303 F.2d 333, 340 (2d Cir. 1962)). _________
8 Although the district court's judgment in Apparel I simply
confirmed the award rendered by the AAA arbitrators, under the
Federal Arbitration Act such a judgment has the same effect as a
judgment in an action. 9 U.S.C. 13 (1988). Therefore, it is,
in all respects, a federal court judgment.
9 Res judicata is sometimes referred to as claim preclusion.
The doctrine of collateral estoppel, or issue preclusion, is
related but distinct. Under collateral estoppel, once a court
has actually decided an issue of fact or law necessary to its
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judgment on the merits of an action precludes the parties or
their privies from relitigating claims that were raised or could
have been raised in that action. Allen v. McCurry, 449 U.S. 90, _____ _______
94 (1980); Gonz lez v. Banco Cent. Corp., 27 F.3d 751, 755 (1st ________ _________________
Cir. 1994). The policy rationale behind res judicata is to
"relieve parties of the cost and vexation of multiple lawsuits,
conserve judicial resources, and, by preventing inconsistent
decisions, encourage reliance on adjudication." Allen, 449 U.S. _____
at 94. Res judicata, therefore, prevents plaintiffs from
splitting their claims by providing a strong incentive for them
to plead all factually related allegations and attendant legal
theories for recovery the first time they bring suit. See Kale, ___ ____
924 F.2d at 1166.
This Court has articulated a three-part test to
determine whether res judicata precludes litigation of a party's
claims. For a claim to be precluded, the following elements must
be present: 1) a final judgment on the merits in an earlier
suit; 2) sufficient identicality between the causes of action
asserted in the earlier and later suits; and 3) sufficient
identicality between the parties in the two suits. Gonz lez, 27 ________
F.3d at 755; Kale, 924 F.2d at 1165. In this case, the Court ____
____________________
judgment, that decision may preclude relitigation of that factual
or legal issue in a suit on a different cause of action involving
a party to the first action. Allen v. McCurry, 449 U.S. 90, 94 _____ _______
(1980). Although Apparel's allegations of fraudulent conveyance
were raised in Apparel II and dismissed by the district court,
neither factual determinations nor conclusions as to the legal
merit of these claims were made by the trial court. Accordingly,
collateral estoppel is inapplicable in this case. Only the
application of res judicata is at issue.
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need not entertain detailed analysis of the first and third
elements of this test. Our examination of the second element of
the test clearly establishes that res judicata is inapplicable to
Apparel's claims.
Only where two separate suits involve sufficiently
identical causes of action does a judgment in an earlier action
preclude litigation of claims in a subsequent action. See ___
Gonz lez, 27 F.3d at 755; Kale, 924 F.2d at 1165. The focal ________ ____
inquiry in assessing the applicability of res judicata,
therefore, is whether the causes of action raised in separate
lawsuits are indeed the same. This Court has adopted the
methodology of the Restatement (Second) of Judgments in defining
the cause of action for res judicata purposes. Manego v. Orleans ______ _______
Bd. of Trade, 773 F.2d 1, 5 (1st Cir. 1985), cert. denied, 475 _____________ ____________
U.S. 1084 (1986). Accordingly, we follow a transactional
approach to determine the identity of the underlying claims or
causes of action. See Gonz lez, 27 F.3d at 755; Kale, 924 F.2d ___ ________ ____
at 1166; Manego, 773 F.2d at 5. Under this approach, a cause of ______
action is defined as a set of facts which can be characterized as
a single transaction or a series of related transactions. The
cause of action, therefore, is a transaction that is identified
by a common nucleus of operative facts. Although a set of facts
may give rise to multiple counts based on different legal
theories, if the facts form a common nucleus that is identifiable
as a transaction or series of related transactions, then those
facts represent one cause of action. See, e.g., Gonz lez, 27 ___ ____ ________
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F.3d at 755; Kale, 924 F.2d at 1166. This Court must determine, ____
therefore, whether the facts that underlie Apparel's claims as
contained in its supplementary pleadings arise from the same
nucleus of operative facts as those that were adjudicated by the
prior judgments of the district court.10 Only if the actions'
factual bases are the same will Apparel's claims be barred by res
judicata. If Apparel's claims as advanced in the supplementary
proceedings are separate and distinct from those litigated in
Apparel I and Apparel II, that is, if they rest on a different
factual basis, then res judicata does not preclude litigation of
Apparel's claims. See Landrigan v. City of Warwick, 628 F.2d ___ _________ ________________
736, 741 (1st Cir. 1980).
This Court has enumerated several factors which are
useful in determining whether a party has advanced claims in
multiple litigations which derive from the same nucleus of
operative facts. See Gonz lez, 27 F.3d at 756. These factors ___ ________
include: 1) whether the facts are related in time, space, origin
or motivation; 2) whether the facts form a convenient trial unit;
and 3) whether treating the facts as a unit conforms to the
parties' expectations. Id. Additionally, when defining the ___
contours of the common nucleus of operative facts, it is often
____________________
10 Although Apparel's claims were raised in supplementary
proceedings and not in a separate action, the policy rationale
underlying the doctrine of res judicata makes it applicable to a
supplementary proceeding just as it would to a separate action.
See Mitchell v. Commission on Adult Entertainment Estabs., 12 ___ ________ ___________________________________________
F.3d 406, 409 (3d Cir. 1993). It is clear that a party could not
relitigate claims through supplementary proceedings that were
previously litigated to a judgment in an earlier action.
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helpful to consider the nature of the injury for which the
litigant seeks to recover. See id. With these considerations in ___ ___
mind, this Court now examines Apparel's claims in the
supplementary pleadings, Apparel I, and Apparel II to determine
whether they are rooted in the same nucleus of operative facts.
We begin by analyzing Apparel's claims as contained in
its supplementary pleadings. These claims were brought in a
post-judgment supplementary proceeding in which Apparel sought to
satisfy the judgment rendered in its favor by the district court
in Apparel I. Apparel's supplementary pleadings allege numerous
instances in which Amertex, in conjunction with the other co-
defendants, acted to defraud Amertex's creditors, including
Apparel. We need not recite each and every alleged wrongdoing.
It suffices to identify the three general allegations made by
Apparel: 1) that Amertex depleted its corporate assets; 2) that
Amertex made fraudulent conveyances; and 3) that Amertex and D.J.
are alter egos of their respective presidents, Leo and Diego
Jacobson. The remedies that Apparel seeks further illustrate the
factual bases of its claims. For the alleged fraudulent
conveyances, Apparel seeks to execute the judgment in Apparel I
directly against those assets that were transferred to D.J. With
respect to the depletion of corporate assets and alter ego
allegations, Apparel seeks to make all the co-defendants jointly
and severally liable on the judgment. It is obvious on the face
of the supplementary pleadings that Apparel's cause of action in
the supplementary proceedings is the alleged effort by Amertex
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and the other co-defendants, including co-appellees, to defraud
Apparel through measures taken to prevent Apparel from collecting
on its judgment. Apparel's supplementary pleadings seek only to
satisfy the judgment. They do not raise any new legal theories
on which Apparel seeks to recover additional damages. Apparel's
supplementary pleadings can only be precluded by res judicata if
the same cause of action, i.e. the co-defendants' fraudulent
efforts to avoid execution of the judgment against Amertex, was
previously litigated to a judgment on the merits in either
Apparel I or Apparel II. Upon analysis of the causes of action
litigated in Apparel I and Apparel II, it is clear that the cause
of action raised in Apparel's supplementary pleading has never
before been litigated on the merits and simply represents
Apparel's effort to enforce the judgment already entered by the
district court in Apparel I.
In Apparel I, the district court confirmed the award
rendered by the AAA arbitrators and entered judgment for Apparel
in the amount of $387,994.00. An arbitration award generally has
res judicata effect as to all claims heard by the arbitrators.
See Pujol v. Shearson/American Express, Inc., 829 F.2d 1201, ___ _____ ________________________________
1206-07 (1st Cir. 1987); 18 Charles A. Wright et al., Federal _______
Practice and Procedure 4475 (1981). A judgment by a federal ______________________
court confirming an arbitration award under the Federal
Arbitration Act has "the same force and effect, in all respects,
as, and [is] subject to all the provisions of law relating to, a
judgment in an action . . . ." 9 U.S.C 13 (1988). Therefore,
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when a federal district court enters a judgment confirming an
arbitration award pursuant to the Federal Arbitration Act, that
judgment has res judicata effect as to all matters adjudicated by
the arbitrators and embodied in their award. See 6 C.J.S. ___
Arbitration 148 (1975). Accordingly, to assess whether the ___________
district court's judgment in Apparel I precludes litigation of
Apparel's supplementary pleadings, this Court must determine
whether Apparel's claims in arbitration arose from the same
nucleus of operative facts as those raised by its allegations in
the supplementary pleadings.
The claims that Apparel raised before the AAA
arbitrators arose from a common nucleus of operative facts
relating to Amertex's misconduct while entering into and
performing under the subcontract.11 This was Apparel's cause
of action and it formed the basis for the claims adjudicated by
the arbitrators and the district court's judgment confirming the
arbitrators' award. For the purposes of our res judicata
analysis, this cause of action is clearly distinct from that
raised by Apparel's supplementary pleadings. None of the factual
circumstances giving rise to Apparel's claims of depletion of
corporate assets, fraudulent conveyance, or alter ego was ever
raised before the arbitrators. Therefore, the district court's
judgment in Apparel I does not, under res judicata principles,
preclude litigation of Apparel's claims as contained in the
supplementary pleadings.
____________________
11 See supra pp. 2-3. ___ _____
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Finally, the Court must consider whether the judgment
rendered by Judge Fust in Apparel II precludes the litigation of
Apparel's supplementary pleadings. Apparel's claims as contained
in its Amended Complaint were based on two separate sets of facts
and thus raised two separate causes of action. The first set of
facts gave rise to Apparel's claim that Amertex violated RICO and
included allegations that Amertex bribed government officials
while securing the prime contract and also committed mail and
wire fraud both in inducing Apparel to enter into the subcontract
and through Amertex's subsequent breaches of the subcontract.
These claims closely parallel the RICO claims raised by Apparel
in arbitration and dismissed by the AAA arbitrators for lack of
subject matter jurisdiction. As in Apparel I, the cause of
action defined by this common nucleus of operative facts is
clearly distinct from that raised by Apparel in its supplementary
pleadings.12 It does not pertain to the actions taken by
Amertex and the other co-defendants to obstruct Apparel's efforts
to collect on the judgment.
The second set of facts alleged by Apparel in Apparel
II formed the basis for essentially the same claims of fraudulent
conveyance, depletion of assets, and alter ego that Apparel
____________________
12 This Court noted the distinction between the two sets of
facts in another context in the decision in Jacobson, where it ________
was observed that the fraudulent conveyance "was not part of the
conduct aimed at securing the contract . . . the [fraudulent
conveyance was] too unrelated -- too separate, too distinct, too __ ___ ___ ___
obviously related to a simple effort to avoid a later court
judgment -- to permit a finding that, taken together with the
earlier acts, it is part of a racketeering 'pattern.'" 967 F.2d
at 724.
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raised in its supplementary pleadings. In Apparel II, Apparel
alleged that while the arbitration was pending, Amertex, along
with co-appellees and the other co-defendants, engaged in
transactions intended to defraud Amertex's creditors, including
Apparel. Accordingly, Apparel's Amended Complaint in Apparel II
prayed that Leo and Harriet Jacobson, along with Diego Jacobson
and D.J., be held jointly and severally liable to Apparel for the
amount of the judgment on the arbitration award, plus interest.
Although Apparel's Amended Complaint in Apparel II
includes claims based on the same cause of action as that raised
in the supplementary pleadings, Judge Fust 's dismissal of the
complaint in Apparel II does not preclude litigation of these
claims in the supplementary proceedings. Under a generally
accepted exception to the res judicata doctrine, a litigant's
claims are not precluded if the court in an earlier action
expressly reserves the litigant's right to bring those claims in
a later action. Kale, 924 F.2d at 1167; Restatement (Second) of ____
Judgments 26(1)(b) (1982). In Judge Fust 's opinion dismissing
Apparel's Amended Complaint in Apparel II, he noted that:
Essentially, the fraudulent transfer
claim is merely one aspect of plaintiff's
attempt at collection of the judgment
issued [in Apparel I]. Since plaintiff
has already begun that process in the
case before Judge P rez-Gim nez, we
cannot entertain these claims again here
without a real risk of allowing multiple
judgments to issue for the same harm
. . . . The dismissal is without
prejudice to any legitimate execution of
judgment motions which plaintiff may seek
to file before Judge P rez-Gim nez [in
the supplementary proceedings].
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Apparel Art Int'l v. Jacobson, Civil No. 90-1756 (JAF) at 6-7 _________________ ________
(D.P.R. Aug. 21, 1991).
It is clear, therefore, that Judge Fust intended to
preserve Apparel's right to raise its fraudulent conveyance
claims in the supplementary proceedings before Judge P rez-
Gim nez. Accordingly, Judge Fust 's dismissal of Apparel's
claims in Apparel II does not preclude litigation of Apparel's
supplementary pleadings.
III. CONCLUSION III. CONCLUSION
We reverse the district court's dismissal of Apparel's
claims as contained in the Supplementary Pleadings in Aid of
Execution of Judgment. The cause of action alleged by Apparel in
its supplementary pleadings has never before been litigated on
the merits, and therefore res judicata does not preclude its
litigation in supplementary proceedings. Apparel may well be
dissatisfied with the award it received in arbitration, as co-
appellees contend, but in this case Apparel merely seeks to
enforce the judgment rendered in its behalf by the district court
in Apparel I. Accordingly, Apparel may prosecute its claims for
depletion of corporate assets, fraudulent conveyance, and alter
ego either in the supplementary proceeding or in a separate
lawsuit.
We decline to address co-appellee's arguments regarding
the procedural inadequacy of appellant's supplementary pleadings
under Fed. R. Civ. P. 69(a) since that was not the basis for the
dismissal. All that we hold is that it was error to dismiss the
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supplementary pleadings in the supplementary proceedings on res
judicata grounds. We remand this case to the district court for
further proceedings consistent with this decision.
Reversed and Remanded. Costs to appellant. _____________________
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