Counterclaim Properly Dismissed Where Issue Was Adjudicated in Prior Arbitration

On July 28, 2022, Justice Borrok of the New York County Commercial Division issued a decision in Firescu v Diamond, 2022 NY Slip Op 32574(U) holding that a counterclaim should be dismissed on a theory of collateral estoppel where the issue was previously decided by an arbitration panel, stating:

Pursuant to CPLR 3211(a)(5), a party may move to dismiss where the claim cannot be maintained because of, among other things, collateral estoppel. The doctrine of collateral estoppel precludes a party from relitigating an issue clearly raised in a prior action or proceeding and decided against that party, whether or not the tribunals or causes of action are the same (Martinez v New York City Transit Authority, 203 AD3 d 87, 91 [1^st Dept 2022], citing Ryan v New York Tel. Co., 62 NY2d 494, 500 [1984]). Collateral estoppel precludes the litigation of factual issues that were necessarily decided in a prior action against [*9] the same party (Bauhouse Group I, Inc. v Kalikow, 190 AD3d 401, 402 [1st Dept 2021]). Arbitration awards may be given preclusive effect and afforded collateral estoppel effect in a subsequent judicial action (Humphries v City University of New York, 146 AD3d 427, 427 [1st Dept 2017]).

The Final Award, which has been confirmed by the Appellate Division, precludes the counterclaim here. Warren Diamond cannot argue that Mr. Firescu is in breach of the October Purchase Agreement for failure to pay the amount in Scott Diamond's account with JSD. The Tribunal found that Warren Diamond sold Scott Diamond's account with his membership interest pursuant to the October Purchase Agreement. It does not matter that the parties agreed pursuant to the October Purchase Agreement that the money would remain in Scott Diamond's account until an agreement was reached or a court order directed what to do with the money. The Final Award makes it clear that the money in that account was sold to Mr. Firescu by [**7] Warren Diamond. The Final Award also makes clear that Mr. Firescu is not liable to Scott Diamond for that money, but rather that Warren Diamond is liable to Scott Diamond for the amount of money that was in Scott Diamond's account. Warren Diamond's counterclaim essentially seeks to relitigate liability for the money in Scott Diamond's account. [*10] This matter was squarely before the Tribunal and Warren Diamond had a full and fair opportunity to be heard on the issue. He is not entitled to a second bite at the apple and is collaterally estopped from litigating the matter. The counterclaim must be dismissed.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding these issues.

Click here to subscribe to this or another of Schlam Stone & Dolan's blogs.