Khan v. New Frontier Media, Inc. , 82 F. App'x 625 ( 2003 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS NOV 26 2003
TENTH CIRCUIT PATRICK FISHER
Clerk
RAFI M. KHAN,
Plaintiff-Appellant,
v. No. 02-1247
(D.C. No. 00-M-1031)
NEW FRONTIER MEDIA, INC., (Colo.)
MICHAEL WEINER, and Does 1
through 10, inclusive,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before SEYMOUR, LUCERO and HARTZ, Circuit Judges.
Rafi M. Khan appeals the grant of summary judgment in favor of
defendants New Frontier Media and Michael Weiner on Mr. Khan’s claim for
tortious interference with contractual relations. The district court ruled Mr.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Khan’s cause of action precluded by an earlier state court judgment. We reverse. 1
We review the grant of summary judgment de novo, applying the same
standard as the district court. Wark v. United States, 269 F.3d 1185, 1187 (10th
Cir. 2001). “Summary judgment is proper if the movant shows ‘there is no
genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.’” Whitesel v. Sengenberger, 222 F.3d 861, 867
(10th Cir. 2000) (quoting F ED . R. C IV . P. 56(c)). “When applying this standard,
we view the evidence and draw reasonable inferences therefrom in the light most
favorable to the nonmoving party.” Simms v. Oklahoma ex rel. Dep’t of Mental
Health & Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir.), cert. denied,
528 U.S. 815 (1999).
Mr. Khan is a financial services and investor relations consultant. New
Frontier is a corporation involved in the distribution of adult entertainment. Mr.
Weiner was the executive vice president of New Frontier during the time period
relevant to this suit. In April 1998, New Frontier entered into a contract with
Cohig and Associates, a financial consulting company. Cohig agreed to provide
New Frontier with financial consulting services in exchange for warrants to
1
None of the parties has requested oral argument. After examining the
briefs and appellate record, this panel has determined unanimously that oral
argument would not materially assist the determination of this appeal. See Fed.
R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered
submitted without oral argument.
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purchase shares of common stock in New Frontier. Cohig then entered into a
separate agreement with Mr. Khan, under which Mr. Khan agreed to perform the
financial services Cohig was obliged to provide under its contract with New
Frontier in return for a percentage of the New Frontier warrants issued to Cohig.
Shortly after the performance period expired, both Mr. Khan and Cohig made
efforts to collect the warrants allegedly due under the New Frontier-Cohig
contract. Contending that no services had been rendered, New Frontier
maintained no warrants were due and refused to issue them.
New Frontier sought a declaratory judgment in Colorado state court in
September 1999 regarding its contractual obligations to Cohig and Mr. Khan.
The state court entered a default judgment against Mr. Khan in June 2000,
declaring that New Frontier was not obligated to pay him any compensation. In
February 2001, upon stipulation of New Frontier and Cohig, the state court
entered judgment declaring that “no warrants, options or other common stock
[were] to be paid” under the New Frontier-Cohig contract. Aplt. App. at 62.
A week after New Frontier filed its action in Colorado, Mr. Khan filed this
suit against New Frontier in the Central District of California. His amended
complaint alleged violations of federal securities law and three state-law claims,
including one labeled breach of contract. It asserted federal jurisdiction for the
federal securities claims under 28 U.S.C. § 1331, and supplemental jurisdiction
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for the state law claims. New Frontier moved to dismiss, contending the
complaint failed to state a federal securities claim and that in the absence of any
federal claims, there was no supplemental jurisdiction supporting the state law
claims. Mr. Khan responded that all the elements of diversity jurisdiction were
present even without his federal claim, and he sought to amend the complaint to
allege subject matter jurisdiction based on diversity. He also sought leave to
amend to “set forth such additional facts as may be appropriate,” and to re-label
his breach of contract claim as one for tortious interference with contract.
The district court granted the motion to dismiss and denied Mr. Khan leave
to amend. Mr. Khan moved for reconsideration. The district court held another
hearing and granted Mr. Khan’s motion, allowing him to plead diversity as a
jurisdictional basis and to proceed with his re-labeled tortious interference claim.
The court left in place the dismissal of the other claims and granted New
Frontier’s motion to transfer venue to the District of Colorado.
After the transfer, New Frontier moved for summary judgment on the sole
remaining claim of tortious interference contending that (1) the Colorado state
court default judgment precluded such a claim, (2) Mr. Khan lacked sufficient
evidence to create a triable issue, and (3) the California district court had erred in
granting relief from its original judgment. The district court granted summary
judgment on the basis of preclusion. Mr. Khan now appeals.
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We review de novo the district court’s determination that the doctrine of
res judicata barred the plaintiff’s claims. See Fox v. Maulding, 112 F.3d 453, 457
(10th Cir. 1997). Because “[f]ederal courts must give to state court judgments
‘the same full faith and credit . . . as they have by law or usage in the courts of
such State . . . in which they are taken,’” id. at 456 (quoting 28 U.S.C. § 1738),
Colorado law determines the preclusive effect of the state court judgment.
In Colorado, claim preclusion generally applies when there is (1) a final
judgment, (2) identity of subject matter, (3) identity of claims for relief, and (4)
identity or privity of parties. Cruz v. Benine, 984 P.2d 1173, 1176 (Colo. 1999).
Colorado cases hold that a defendant to a declaratory judgment action, as Mr.
Khan was here, is not required to assert as a compulsory counterclaim a claim for
damages arising out of the relationship at issue in the declaratory judgment
action. See Eason v. Bd. of County Comm’rs, 961 P.2d 537, 540 (Colo. Ct. App.
1997). Thus, “[a] declaratory judgment . . . does not constitute an absolute bar to
subsequent proceedings where the parties are seeking other remedies, even though
based upon claims which could have been asserted in the original action.”
Atchison v. City of Englewood, 506 P.2d 140, 143 (Colo. 1973).
This case is somewhat complicated by the fact that there were three parties
to the declaratory judgment action and two separate declaratory judgments were
entered, one for each defendant. The default judgment entered against Mr. Khan
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declared that New Frontier did not owe Mr. Khan anything under the New
Frontier-Cohig agreement or otherwise. The judgment to which New Frontier and
Cohig subsequently stipulated established that “no warrants, options or other
common stock [were] to be paid” under the New Frontier-Cohig contract.
New Frontier contends nothing was due under its contract with Cohig at the
time of the declaratory judgment action because New Frontier had not actually
requested any services under the contract and any obligation to pay warrants was
only triggered by such a request. Mr. Khan asserts that the contract price was for
the option of requesting services during the contract period except where
otherwise specified, and that the warrants were due under the contract regardless
of whether services were requested or provided. The stipulated judgment between
New Frontier and Cohig indicates only that nothing was due at the time of the
judgment; it does not say that nothing was due at the outset of the litigation.
None of the parties presented any evidence with regard to whether anything of
consequence occurred between the time the suit was filed and the time judgment
was entered. Preclusion is an affirmative defense, so New Frontier bore the
burden of persuasion on this point. See Owens v. Sun Oil Co., 482 F.2d 564, 567
(10th Cir. 1973). New Frontier was required to establish that the stipulated
judgment entitled it to prevail on the ground that it owed Cohig nothing when the
state suit was filed. Because New Frontier has not carried this burden, the state
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court stipulated judgment does not bar Mr. Kahn from asserting his tortious
interference claim.
New Frontier also suggests we may affirm on the alternative ground that
Mr. Khan failed to put on sufficient admissible evidence of tortious interference
with contract. 2 The district court did not address this argument and the evidence
presented appears sufficient to raise factual issues supporting Mr. Kahn’s theory
that New Frontier and Cohig colluded to prevent him from receiving the warrants
due him. This theory is supported by the deposition testimony of Mr. Khan, see
Aplee. App. at 32-74, and Mr. Rappaport, see Aplt. App., doc. 73, ex. 1.
Moreover, the settlement agreement is not in the record, so we can determine
2
In his sur-reply, Mr. Khan attached an exhibit containing the deposition
testimony of Mr. Richard Rappaport, the manager of Cohig’s Corporate Finance
Department who signed the agreements with both New Frontier and Mr. Kahn.
Mr. Rappaport testified that Cohig representatives told him not to pursue
collection of the warrants because doing so might interfere with efforts by Cohig
to obtain other deals with New Frontier. New Frontier argues for the first time on
appeal that the testimony is hearsay under Federal Rules of Evidence 801(c) and
802 and is inadmissible when offered against New Frontier to show improper
interference.
New Frontier had ample opportunity in the district court to object to Mr.
Rappaport’s testimony as hearsay because Mr. Khan filed his sur-reply on
November 30, 2001, and the district court did not grant summary judgment until
April 11, 2002. Because New Frontier did not object on hearsay grounds, we will
not exclude Mr. Rappaport’s testimony from our consideration of whether
summary judgment is appropriate. See Associated Press v. Cook, 513 F.2d 1300,
1303 (10th Cir. 1975) (if party fails to object to affidavits filed in support of
summary judgment motion and argues their inadmissability for the first time on
appeal, any formal defects contained in affidavits are deemed waived and the
affidavits may be considered in ruling on summary judgment motion).
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neither what it says nor whether it indicates collusion between New Frontier and
Cohig. These factual questions require further investigation by the district court.
New Frontier’s third argument is that the California district court erred by
granting the motion for reconsideration after having dismissed the action, and by
transferring venue to the District of Colorado. In McGeorge v. Continental
Airlines, Inc., 871 F.2d 952 (10th Cir. 1989), however, we held that we lack
jurisdiction under 28 U.S.C. 1294(1) to review an order of a federal district court
outside our circuit. Id. at 954. In McGeorge, the district court in the District of
Columbia dismissed some of the plaintiff’s claims and then transferred venue to
the Western District of Oklahoma. The plaintiff asked us to review the dismissal
order but we concluded we had no jurisdiction to do so. The same is true here
because “[w]e are bound by the precedent of prior panels absent en banc
reconsideration or a superseding contrary decision by the Supreme Court.” In re
Smith, 10 F.3d 723, 724 (10th Cir. 1993) (citations omitted). Pursuant to
McGeorge, we do not have jurisdiction to consider New Frontier’s third
argument.
Accordingly, we REVERSE and REMAND for further proceedings.
ENTERED FOR THE COURT
Stephanie K. Seymour
Circuit Judge
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