Korman, Glambosky, Honig and Mascia Victorious on Appeal

A recent decision serves as a cautionary tale for attorneys. The Appellate Division, Second Department affirmed a Supreme Court order dismissing an action to recover damages for unlawful termination on the ground that the same issue had already been decided in a prior action.

In the prior action, the plaintiff’s counsel prepared and signed a stipulation of discontinuance with prejudice. When plaintiff and the same attorney subsequently commenced another action based on the same facts, the firm successfully moved to dismiss on the grounds of res judicata, arguing that the issue had already been decided in the prior action.

On appeal, plaintiff argued that the firm knew, or should have known, the stipulation inadvertently included the phrase “with prejudice.” The firm argued that, regardless of any unilateral mistake or the subjective intent of plaintiff’s counsel, a stipulation of discontinuance with prejudice precludes any future action based on the same facts.

The Second Department held that the phrase “with prejudice” in a stipulation of discontinuance carries a preclusive effect in future actions based on the same facts. The Court recognized that in some cases, the phrase “with prejudice” could be narrowly interpreted when demanded by the interest of justice. But the Court adopted the firm’s argument that the facts of this case did not warrant such an interpretation.

Rivkin’s attorneys provided the Court with a comprehensive analysis of the relatively rare instances where it narrowly interpreted the phrase “with prejudice” and explained that a court has never narrowly interpreted the phrase based on a party’s unilateral mistake or subjective intent.

The Second Department further adopted the firm’s argument that it could not vacate or modify the stipulation on the ground of mutual mistake or unilateral mistake based on fraudulent inducement. The Court explained that plaintiff failed to establish by clear and convincing evidence that the stipulation was executed under a mutual mistake or a unilateral mistake induced by a fraudulent misrepresentation by the firm. With regard to the alleged fraudulent inducement, the court explained: “Even if opposing counsel was aware of the mistake, he owed no duty to disclose it to his adversary.”

The Second Department decision represents a reminder that, in an adversarial system, adversaries owe each other very few duties, and success depends upon attention to detail.