Res Judicata Barred Claims Against Defendant Based On Privity

On January 22, 2025, Justice Nancy M. Bannon issued a Decision and Order in Cantor Fitzgerald & Co. v. PEI Global Partners Holdings LLC, Index No. 651268/2024, granting defendant’s motion to dismiss on the grounds the action was barred by res judicata based on prior FINRA arbitrations. Plaintiff had commenced separate arbitrations against four prior employees who founded defendant PEI Global Partners Holdings LLC, and a fifth arbitration against PEI Global Partners LLC, a broker-dealer wholly owned by the defendant. Although Defendant could not be made a party to the prior arbitrations as it was not a FINRA member and had no agreement to arbitrate before FINRA, the Court explained:

Further, while the defendant was not a party to the Prior Proceeding, it is in privity with both the Broker-Dealer, which it wholly owns, and the PEI Bankers, which wholly own the PEI Broker-Dealer. See Gulf LNG Energy, LLC v Eni S.p.A., supra; Prospect Owners Corp. v Tudor Realty Servs. Corp., 260 AD2d 299 (1st Dept. 1999) (individual owners and operators of company are in privity with the company for purposes of res judicata even though individuals were not parties to prior action). Thus, the defendant was in privity with PEI Banker and PEI Broker-Dealer so as to have had “functional representation” in the Prior Proceeding. Id. at 189-190. Res judicata bars the plaintiff’s claims notwithstanding that the defendant could not be made a party to the Prior Proceeding. The First Department has affirmed the application of res judicata based on an initial arbitration award where, as here, the parties are in privity, even if the defendant in the subsequent action could not have involuntarily been made a party to the initial arbitration. See, e.g. Hament v FitzGerald, supra; see also TPR Inv. Assocs., Inc. v Fischer, supra.

The attorneys at Schlam Stone & Dolan frequently litigate res judicata issues. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.