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Holding that a New York state court had already adjudicated the dispute before it, a Southern District judge dismissed a filing based on the same facts as the previous case even though plaintiffs brought the second action under federal securities law. The decision, NM IQ LLC v. Patrick McVeigh, 03 Civ. 4371, by Judge John Keenan rested on the doctrine of res judicata, which precludes parties from re-litigating issues and claims already ruled upon in another court. In the fall of 2000, executives at OmniSky, a wireless technology company that provided services for mobile devices entered into merger talks with the plaintiffs, a group of investors. The plaintiffs formed NM IQ LLC solely to consummate the merger. Soon after the parties signed a merger agreement in January 2001, OmniSky revealed that it would fall short of its subscriber projections. Plaintiffs went ahead and closed the deal days later. This was one of several revelations cited by the investors in a suit brought in New York state court after OmniSky filed for bankruptcy in December 2001. The investors argued that Patrick McVeigh and other OmniSky executives mislead them into entering a merger based on fraudulent financial representations. Justice Karla Moskowitz dismissed the case holding that the plaintiffs failed to state an actionable cause. The future projections of the company’s success relied upon by the investors were “estimates,” said Justice Moskowitz, and “carried no guarantee of success.” On June 16, 2003, two days before they filed an amended complaint in the state action, NM IQ filed suit in federal court making many of the same arguments but basing the fraud action on federal securities law as OmniSky was a publicly traded company. Applying the doctrine of res judicata, which includes claim and issue preclusion, Judge Keenan dismissed the case. Keenan applied the doctrine of claim preclusion to the common law fraud claims made by NM IQ. As a first step, the court found that Moskowitz’s decisions were “final judgments on the merits” of the case, thus prohibiting plaintiffs from bringing the same common law claims in the federal court. Claim preclusion could not apply to the allegations made under federal securities law, however. But Keenan dismissed these actions under the doctrine of issue preclusion, which prohibits a party from re-litigating facts and legal principles in a second court after it has had full opportunity to litigate them in the original court. Although NM IQ’s claims fell under federal law, Keenan held that the standards used in securities law to determine fraud were nearly identical to the New York state law standards. Specifically, plaintiffs claimed that they relied on McVeigh’s allegedly false representations. Keenan ruled that “the reliance standards are similar for the 1934 Act and common law securities fraud claims.” As a result, “the Court finds that Plaintiffs’ 1934 Act claims involve the identical issues that were necessarily decided in state court,” he said. With this overlap, Keenan applied the doctrine of issue preclusion in rejecting the plaintiffs’ remaining allegations. Daniel Krasner, Thomas Burt and Kate McGuire of Wolf Haldenstein Adler Freeman & Herz represented plaintiffs. Jay Cohen and Robyn Tarnofsky of Paul, Weiss, Rifkind, Wharton & Garrison represented OmniSky.

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