Apparel Art International, Inc. v. Amertex Enterprises Ltd.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-1076

APPAREL ART INTERNATIONAL, INC.,

Plaintiff, Appellant,

v.

AMERTEX ENTERPRISES LTD., ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Juan M. P rez-Gim nez, U.S. District Judge]

Before

Selya, Circuit Judge,

Campbell, Senior Circuit Judge,

and Lagueux,* District Judge.

Freddie P rez-Gonz lez with whom Woods, Rosenbaum, Luckeroth

& P rez-Gonz lez was on brief for appellant.

Eugene F. Hestres with whom Bird, Bird & Hestres was on

brief for appellees.

February 17, 1995

* Of the District of Rhode Island, sitting by designation.

LAGUEUX, District Judge. This matter is before the

Court on appeal from a decision rendered by Judge Juan M. P rez-

Gim nez in the United States District Court for the District of

Puerto Rico. Applying Puerto Rico's res judicata doctrine, Judge

P rez-Gim nez dismissed appellant Apparel Art International,

Inc.'s ("Apparel") claims of fraudulent conveyance, depletion of

corporate assets, and alter ego as contained in Apparel's

Supplementary Pleadings in Aid of Execution of Judgment. Those

pleadings were filed in supplementary proceedings in which

Apparel sought to enforce an arbitration award rendered against

Amertex Enterprises Ltd. ("Amertex") by American Arbitration

Association ("AAA") arbitrators and confirmed by the district

court.

I. BACKGROUND FACTS
I. BACKGROUND FACTS

A. The Parties
A. The Parties

Apparel is a Delaware corporation that manufactures

clothing at a plant located in Puerto Rico. Amertex is a New

York corporation with offices in Puerto Rico. Leo Jacobson is a

resident of Puerto Rico and is president and chairman of the

board of directors of Amertex. Harriet Jacobson is a resident of

Puerto Rico and is the wife of Leo Jacobson. Leo and Harriet

Jacobson are the sole stockholders of Amertex. Co-appellee, D.J.

Manufacturing Co. ("D.J."), is a Puerto Rico corporation. Co-

appellee, Diego Jacobson, is a resident of Puerto Rico and is the

son of Leo and Harriet Jacobson. Diego Jacobson is president of

D.J. and chairman of its board of directors.

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B. The Contractual Relationship Between Apparel and Amertex
B. The Contractual Relationship Between Apparel and Amertex

In 1985, Apparel entered into a subcontract with

Amertex under which Apparel was to manufacture certain components

of "Chempro", a camouflage chemical protective suit for military

use. Amertex had entered into a contract (the "prime contract")

to supply Chempro suits to the United States Department of

Defense. This case began when Apparel initiated an arbitration

proceeding claiming that Amertex had breached the subcontract. A

detailed review of the numerous legal proceedings in this matter,

beginning with the arbitration, is a necessary prelude to our

determination of the res judicata question at issue on appeal.

C. The Arbitration
C. The Arbitration

On November 17, 1986, Apparel initiated arbitration

proceedings against Amertex before the AAA in San Juan, Puerto

Rico. The dispute was brought before the AAA pursuant to an

arbitration clause contained in the subcontract. As the only

signatories to the subcontract, Apparel and Amertex were the only

parties to the arbitration. In its Statement of Claims filed

with the AAA on July 29, 1987, Apparel alleged that Amertex had

engaged in the following misconduct: 1) Amertex breached the

subcontract;1 2) Amertex illegally attached Apparel's assets

after falsely alleging that Apparel breached the subcontract; 3)

Amertex breached certain modifications of the subcontract; 4)

1 Apparel alleged that Amertex breached the subcontract by
failing to comply with delivery schedules and pick-ups, failing
to file claims or bring about restitution, and failing to make
payments.

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Amertex fraudulently and negligently performed under the

subcontract; 5) Amertex failed to pay an increase in the unit

price; and 6) Amertex fraudulently induced Apparel to enter into

the subcontract. On August 6, 1987, Apparel filed a Supplement

to its Statement of Claims alleging that Amertex engaged in

fraudulent conduct that constituted a pattern of racketeering

activity under the Racketeer Influenced and Corrupt Organizations

Act ("RICO"), 18 U.S.C. 1961-1968 (1988 & Supp. V 1993).2 On

September 16, 1987, the arbitrators dismissed Apparel's RICO

claims because under the arbitration clause they lacked subject

matter jurisdiction to hear those claims. Apparel did not seek

judicial review of that dismissal. On June 27, 1989, after

nearly two years of hearings, the arbitrators awarded $387,994.00

to Apparel. The arbitrators further decided that the costs of

arbitration were to be borne equally between the parties.

D. Apparel I - The District Court Action Before Judge P rez-
D. Apparel I - The District Court Action Before Judge P rez-
Gim nez
Gim nez

On September 26, 1989, Apparel filed this lawsuit,

Civil Action No. 89-1272 (PG) (hereinafter "Apparel I"), against

Amertex and the AAA as co-defendants in the United States

District Court for the District of Puerto Rico. The case was

assigned to Judge P rez-Gim nez. Apparel's complaint sought to

set aside the arbitration award under the procedures authorized

2 Among the conduct that Apparel alleged to violate RICO was:
Amertex's fraudulent inducement of Apparel to enter into the
subcontract; bribery of government officials in order to secure
the prime contract; and mail and wire fraud in the submission of
false information to the government.

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by the Federal Arbitration Act, 9 U.S.C. 10-11 (1988 & Supp. V

1993). Apparel alleged that the arbitration process was

arbitrary and the award was insufficient. Apparel prayed that

the court set aside the arbitration award and resubmit the merits

of the case for resolution by the court. In the alternative,

Apparel prayed that the court remand the case to the arbitrators

so the award could be clarified.

Amertex moved to dismiss the complaint on the grounds

that the action was time-barred because Apparel failed to provide

required notice. On March 26, 1990, Apparel voluntarily

consented to the dismissal, without prejudice, of its claim

against the AAA. Apparel also moved to convert the suit against

Amertex to an action to enforce the arbitration award pursuant to

the Federal Arbitration Act, 9 U.S.C. 9 (1988). Judge P rez-

Gim nez granted Apparel's motion on April 10, 1990, and entered

an order dismissing the action as to the AAA, confirming the

award against Amertex, and entering judgment for Apparel in the

amount of $384,994.00 plus interest, costs, and attorneys' fees.

The court subsequently, on the motion of Amertex, modified the

judgment to remove the imposition of court costs and attorneys'

fees against Amertex.

After entering judgment on the arbitration award, the

district judge permitted Apparel to conduct post-judgment

discovery in supplementary proceedings so that Apparel could

execute the judgment against Amertex. In January of 1991,

Apparel moved the court to compel production of documents and for

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sanctions. Apparel alleged that it was investigating the

transfer of assets from Amertex to D.J., a company which Apparel

suspected to have been created for the purpose of defrauding

Amertex's creditors. Amertex opposed the motion on the grounds

that Apparel's discovery request was onerous. On January 8,

1991, Apparel moved for execution of the judgment against Amertex

because Amertex had not paid the judgment. Apparel requested the

court to execute the judgment via attachment or garnishment

against a balance owed by D.J. to Amertex. In its opposition to

this motion, Amertex argued that D.J. was not a party to the

action and Apparel had not filed notice of the motion with D.J.,

and requested a show cause hearing to determine whether D.J.

should be subject to an order to execute the judgment. On

January 10, 1991, Amertex also requested that the court issue a

protective order insulating Amertex from further discovery

requests. On January 24, 1991, the district court denied

Amertex's request for a protective order, ordered the execution

of the judgment, and ordered attachments and garnishments to be

served on Amertex's debtors - including a writ of attachment

ordering D.J. to pay to Apparel any sums that D.J. owed to

Amertex.

In response to Apparel's Motion Requesting an Order for

Garnishment of Funds to be served on the United States

Government, on January 31, 1991, Amertex filed an "acquiescence"

to Apparel's motion for garnishment and requested that the court

issue a protective order staying Apparel from filing additional

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motions for execution of the judgment. In its opposition to

Amertex's request for a protective order, Apparel argued that

Amertex's claim against the government was uncertain and that the

proceeds from that claim had already been assigned by Amertex to

the Banco Popular de Puerto Rico. Apparel alleged that Amertex

had informed Apparel it was unable to satisfy the judgment

because it had no assets. Apparel further alleged that through

post-judgment discovery it had discovered evidence of illegal

transfers of assets, conspiracy, alter ego, and the misuse of

corporate funds by Leo Jacobson and others. On May 8, 1991,

Judge P rez-Gim nez denied Amertex's request for a protective

order, noting that Amertex had not yet satisfied the money

judgment owed to Apparel.

E. Apparel II - The District Court Action Before Judge Fust
E. Apparel II - The District Court Action Before Judge Fust

While the enforcement proceedings were ongoing before

Judge P rez-Gim nez, on May 31, 1990, Apparel initiated a

separate civil action in the United States District Court for the

District of Puerto Rico. In that case, Civil Action No. 90-1756

(JAF) (hereinafter "Apparel II"), assigned to Judge Jose Antonio

Fust , Apparel made several claims under RICO against Amertex, as

well as D.J., Leo Jacobson, Harriet Jacobson, Diego Jacobson, and

Donald Sherry.3 These were essentially the same allegations

that had been dismissed by the arbitrators for lack of subject

matter jurisdiction. Apparel alleged that Amertex engaged in

bribery of government officials and submitted false information

3 Donald Sherry was a government contracting officer.

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to the government in its effort to secure the Chempro contract.

In addition, Apparel alleged that both during the arbitration

hearings and after the award was rendered, Leo Jacobson,

conspiring with Diego Jacobson, diverted Amertex's assets to D.J.

in order to avoid satisfying the arbitration award. These

allegations were made prior to the post-judgment discovery

conducted in connection with the enforcement proceeding pending

before Judge P rez-Gim nez, but raised new fraudulent conveyance

and alter ego claims which were never brought before the

arbitrators. On March 4, 1991, Apparel moved to amend its

complaint, further elaborating its fraudulent conveyance claims

and seeking to add a new defendant, one Ricardo Charaf.4

Apparel alleged that its amended complaint was based on evidence

obtained through post-judgment discovery conducted in the

enforcement action before Judge P rez-Gim nez. On April 1, 1991,

the co-defendants argued in their opposition to Apparel's motion

for leave to amend that Apparel's allegations of fraudulent

conveyance should be submitted in the enforcement action then

pending before Judge P rez-Gim nez, and not in Apparel II.

On August 21, 1991, Judge Fust dismissed Apparel's

claims as contained in the amended complaint. He held that res

judicata precluded litigation of Apparel's RICO claims pertaining

to the parties' subcontractual relationship because they could

and should have been raised before Judge P rez-Gim nez in Apparel

I before final judgment was entered on the arbitration award.

4 Ricardo Charaf was Vice-President of Amertex.

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Accordingly, he ruled that further litigation concerning the

damages suffered by Apparel under the subcontract was barred by

res judicata. Although Judge Fust also dismissed Apparel's

fraudulent conveyance claims, in so doing he noted that those

allegations should be raised in the enforcement action before

Judge P rez-Gim nez. Otherwise, multiple judgments might be

rendered on the same claims. Accordingly, Judge Fust dismissed

Apparel's fraudulent conveyance claims "without prejudice to any

legitimate execution of judgment motions which plaintiff may seek

to file before Judge P rez-Gim nez." Apparel Art Int'l, Inc. v.

Jacobson, Civil No. 90-1756 (JAF) at 7 (D.P.R. Aug. 21, 1991).

Pursuant to this order, a copy of the dismissal order was filed

in the enforcement proceeding then pending before Judge P rez-

Gim nez.

Apparel then appealed Judge Fust 's dismissal to this

Court. A panel of this Court affirmed Judge Fust 's dismissal of

the action, but did not base its decision on res judicata

principles. Apparel Art Int'l, Inc. v. Jacobson, 967 F.2d 720,

722 (1st Cir. 1992). Rather, it was held that Apparel's

allegations failed to establish a pattern of illegal conduct

sufficient to support a claim under RICO. Id. at 724.

F. Apparel's Supplementary Pleadings in Aid of Execution of
F. Apparel's Supplementary Pleadings in Aid of Execution of
Judgment
Judgment

On October 29, 1992, Apparel filed a Motion to

Supplement Allegations as Part of Supplementary Proceedings

before Judge P rez-Gim nez. In its motion, Apparel alleged that

while conducting post-judgment discovery, Apparel learned that

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Amertex had concealed and diverted its assets in concert with co-

appellee D.J. and had thus impeded execution of the judgment.

Therefore, Apparel initiated post-judgment supplementary

proceedings in an effort to satisfy the judgment. Accordingly,

also on October 29, Apparel filed Supplementary Pleadings in Aid

of Execution of Judgment. The supplementary pleadings named

Amertex, D.J., Leo Jacobson, Harriet Jacobson, and Diego Jacobson

as co-defendants involved in Amertex's effort to avoid paying the

judgment. Apparel alleged the following unlawful conduct: 1)

Amertex's corporate assets had been depleted; 2) Amertex's assets

were fraudulently conveyed to co-appellee D.J.; and 3) Amertex

and D.J. were alter egos of their presidents, Leo Jacobson and

Diego Jacobson, respectively.5 Apparel sought only two

remedies. First, Apparel sought to execute the judgment against

the assets that were fraudulently conveyed from Amertex to D.J.

Second, Apparel prayed that on its depletion of corporate assets

and alter ego claims, all co-defendants be held jointly and

severally liable for the judgment. The co-defendants did not

oppose Apparel's attempt to file a supplementary pleading, and on

November 11, 1992, the district court granted Apparel's motion to

supplement its allegations as part of the supplementary

proceeding in aid of execution of judgment. On January 29, 1993,

the district court ordered D.J. to appear at a show cause hearing

5 These are substantially the same allegations as those made
before Judge Fust in Apparel II and dismissed by the court
without prejudice to the consideration of them in the enforcement
action before Judge P rez-Gim nez.

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and demonstrate why the asset transfers from Amertex were not

illegal and should not be rendered null and void so that Apparel

could execute the judgment directly against the transferred

assets. The order also directed Apparel to offer proof of its

alter ego allegations sufficient to show that liability could be

imposed against the co-defendants.

On April 12, 1993, co-appellees D.J. and Diego Jacobson

filed a Motion to Dismiss, or in the Alternative for Summary

Judgment on the grounds that, due to Judge Fust 's order

dismissing Apparel's claims in Apparel II, res judicata barred

litigation of Apparel's claims in the supplementary proceedings.

D.J. and Diego Jacobson further argued that the supplementary

pleadings were procedurally defective under Fed. R. Civ. P. 69.

The motion was opposed by Apparel. On August 3, 1993, Judge

P rez-Gim nez granted the motion to dismiss after concluding that

Apparel's claims were precluded under Puerto Rico's res judicata

doctrine. He reasoned that the underlying purpose of Apparel's

claims in the supplementary proceedings was to raise claims of

fraudulent conduct that had been previously dismissed by Judge

Fust in Apparel II and affirmed by this Court. Judge P rez-

Gim nez reasoned that there was no difference between the persons

or claims in the enforcement action and those in Apparel II, and,

thus, concluded that Apparel had merely reworked its legal

theories in an effort to secure a more favorable judgment.

On August 13, 1993, Apparel moved the court to amend

and reconsider its order of dismissal. Judge P rez-Gim nez

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denied the motion on October 12, 1993, and judgment was entered

on November 30, 1993. Apparel appealed the district court's

dismissal to this Court on December 17, 1993.

After carefully considering the record, the parties'

briefs, and the parties' oral arguments, this Court holds that

res judicata does not bar Apparel's claims as contained in the

supplementary pleadings. Therefore, we reverse the dismissal

entered by the court below and remand the case for further

proceedings.

II. DISCUSSION
II. DISCUSSION

The decision appealed from is that res judicata barred

relitigation of the claims as contained in Apparel's

Supplementary Pleadings in Aid of Execution of Judgment. Judge

P rez-Gim nez reasoned that, under Puerto Rico's version of the

res judicata doctrine, there was no difference between the claims

raised in Apparel's supplementary pleadings and those dismissed

by Judge Fust in Apparel II - a dismissal that was affirmed by

this Court of Appeals. We review de novo the district court's

dismissal of Apparel's claims as contained in the supplementary

pleadings. See Kale v. Combined Ins. Co. of America, 924 F.2d

1161, 1165 (1st Cir. 1991), cert. denied, 112 S. Ct. 69 (1991)

(Court of Appeals ordinarily reviews trial courts' rulings on

motions to dismiss de novo).

Apparel's supplementary pleadings were brought in

supplementary proceedings pursuant to Fed. R. Civ. P. 69(a) to

aid in the execution of the district court's judgment in Apparel

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I. Through that judgment, the court confirmed the award of the

AAA arbitrators. At the outset we must consider whether federal

res judicata principles are applicable to this case or whether,

as the district court concluded, Puerto Rico's res judicata

principles should guide the analysis.

Under Fed. R. Civ. P. 69(a), supplementary proceedings

in aid of execution of a judgment are to be conducted "in

accordance with the practice and procedure of the state in which

the district court is held . . . ." However, a district court

must apply only those provisions of state law which specifically

govern the enforcement of judgments. 12 Charles A. Wright &

Arthur R. Miller, Federal Practice and Procedure 3012 (1973).

The district court need not follow general state procedural law.

Id. Therefore, because Puerto Rico's res judicata doctrine is

not uniquely applicable to supplementary proceedings, Fed. R.

Civ. P. 69(a) does not compel the application of Puerto Rico's

principles of res judicata in this case.6

Plainly, the district court was mistaken when it

applied Puerto Rico's preclusion law in dismissing Apparel's

supplementary pleadings. Federal law principles of res judicata

govern the preclusive effect of a prior federal court's judgment

on a subsequent action brought in federal court. In re El San

6 Puerto Rico's res judicata doctrine is codified in P.R. Laws
Ann. tit. 31, 3343 (1991). This is a general provision of
Puerto Rico's law of civil procedure which is not specifically
applicable to supplementary proceedings in aid of execution of a
judgment.

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Juan Hotel Corp., 841 F.2d 6, 9 (1st Cir. 1988).7 In this case,

the Court must analyze the preclusive effects of the prior

judgments rendered by the district court in Apparel I and Apparel

II to determine whether they bar litigation of Apparel's

supplementary pleadings. Because both of these earlier judgments

were rendered by a federal court, the preclusive effect of those

judgments in this federal case is governed by federal res

judicata principles.8 Accordingly, federal principles of res

judicata, not those of the Commonwealth of Puerto Rico, are

controlling here with respect to this Court's de novo review of

the district court's dismissal of Apparel's supplementary

pleadings.

Under the federal law of res judicata,9 a final

7 This Court has held that where a federal court has subject
matter jurisdiction under diversity, federal law governs the
preclusive effect of prior federal court judgments. Johnson v.

SCA Disposal Servs., Inc., 931 F.2d 970, 974 (1st Cir. 1991).

Similarly, federal law governs the res judicata effects of a
federal court judgment in a prior federal question case on a
subsequent case that presents a federal question to a federal
court. See Blonder-Tongue Lab., Inc. v. University of Ill.

Found., 402 U.S. 313, 324 n.12 (1971); Gonz lez v. Banco Cent.

Corp., 27 F.3d 751, 755 (1st Cir. 1994). The policy underlying

the application of federal res judicata principles is that the
federal courts must have the power to define the effect of their
own judgments. See Johnson, 931 F.2d at 974 (quoting Kern v.

Hettinger, 303 F.2d 333, 340 (2d Cir. 1962)).

8 Although the district court's judgment in Apparel I simply
confirmed the award rendered by the AAA arbitrators, under the
Federal Arbitration Act such a judgment has the same effect as a
judgment in an action. 9 U.S.C. 13 (1988). Therefore, it is,
in all respects, a federal court judgment.

9 Res judicata is sometimes referred to as claim preclusion.
The doctrine of collateral estoppel, or issue preclusion, is
related but distinct. Under collateral estoppel, once a court
has actually decided an issue of fact or law necessary to its

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judgment on the merits of an action precludes the parties or

their privies from relitigating claims that were raised or could

have been raised in that action. Allen v. McCurry, 449 U.S. 90,

94 (1980); Gonz lez v. Banco Cent. Corp., 27 F.3d 751, 755 (1st

Cir. 1994). The policy rationale behind res judicata is to

"relieve parties of the cost and vexation of multiple lawsuits,

conserve judicial resources, and, by preventing inconsistent

decisions, encourage reliance on adjudication." Allen, 449 U.S.

at 94. Res judicata, therefore, prevents plaintiffs from

splitting their claims by providing a strong incentive for them

to plead all factually related allegations and attendant legal

theories for recovery the first time they bring suit. See Kale,

924 F.2d at 1166.

This Court has articulated a three-part test to

determine whether res judicata precludes litigation of a party's

claims. For a claim to be precluded, the following elements must

be present: 1) a final judgment on the merits in an earlier

suit; 2) sufficient identicality between the causes of action

asserted in the earlier and later suits; and 3) sufficient

identicality between the parties in the two suits. Gonz lez, 27

F.3d at 755; Kale, 924 F.2d at 1165. In this case, the Court

judgment, that decision may preclude relitigation of that factual
or legal issue in a suit on a different cause of action involving
a party to the first action. Allen v. McCurry, 449 U.S. 90, 94

(1980). Although Apparel's allegations of fraudulent conveyance
were raised in Apparel II and dismissed by the district court,
neither factual determinations nor conclusions as to the legal
merit of these claims were made by the trial court. Accordingly,
collateral estoppel is inapplicable in this case. Only the
application of res judicata is at issue.

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need not entertain detailed analysis of the first and third

elements of this test. Our examination of the second element of

the test clearly establishes that res judicata is inapplicable to

Apparel's claims.

Only where two separate suits involve sufficiently

identical causes of action does a judgment in an earlier action

preclude litigation of claims in a subsequent action. See

Gonz lez, 27 F.3d at 755; Kale, 924 F.2d at 1165. The focal

inquiry in assessing the applicability of res judicata,

therefore, is whether the causes of action raised in separate

lawsuits are indeed the same. This Court has adopted the

methodology of the Restatement (Second) of Judgments in defining

the cause of action for res judicata purposes. Manego v. Orleans

Bd. of Trade, 773 F.2d 1, 5 (1st Cir. 1985), cert. denied, 475

U.S. 1084 (1986). Accordingly, we follow a transactional

approach to determine the identity of the underlying claims or

causes of action. See Gonz lez, 27 F.3d at 755; Kale, 924 F.2d

at 1166; Manego, 773 F.2d at 5. Under this approach, a cause of

action is defined as a set of facts which can be characterized as

a single transaction or a series of related transactions. The

cause of action, therefore, is a transaction that is identified

by a common nucleus of operative facts. Although a set of facts

may give rise to multiple counts based on different legal

theories, if the facts form a common nucleus that is identifiable

as a transaction or series of related transactions, then those

facts represent one cause of action. See, e.g., Gonz lez, 27

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F.3d at 755; Kale, 924 F.2d at 1166. This Court must determine,

therefore, whether the facts that underlie Apparel's claims as

contained in its supplementary pleadings arise from the same

nucleus of operative facts as those that were adjudicated by the

prior judgments of the district court.10 Only if the actions'

factual bases are the same will Apparel's claims be barred by res

judicata. If Apparel's claims as advanced in the supplementary

proceedings are separate and distinct from those litigated in

Apparel I and Apparel II, that is, if they rest on a different

factual basis, then res judicata does not preclude litigation of

Apparel's claims. See Landrigan v. City of Warwick, 628 F.2d

736, 741 (1st Cir. 1980).

This Court has enumerated several factors which are

useful in determining whether a party has advanced claims in

multiple litigations which derive from the same nucleus of

operative facts. See Gonz lez, 27 F.3d at 756. These factors

include: 1) whether the facts are related in time, space, origin

or motivation; 2) whether the facts form a convenient trial unit;

and 3) whether treating the facts as a unit conforms to the

parties' expectations. Id. Additionally, when defining the

contours of the common nucleus of operative facts, it is often

10 Although Apparel's claims were raised in supplementary
proceedings and not in a separate action, the policy rationale
underlying the doctrine of res judicata makes it applicable to a
supplementary proceeding just as it would to a separate action.
See Mitchell v. Commission on Adult Entertainment Estabs., 12

F.3d 406, 409 (3d Cir. 1993). It is clear that a party could not
relitigate claims through supplementary proceedings that were
previously litigated to a judgment in an earlier action.

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helpful to consider the nature of the injury for which the

litigant seeks to recover. See id. With these considerations in

mind, this Court now examines Apparel's claims in the

supplementary pleadings, Apparel I, and Apparel II to determine

whether they are rooted in the same nucleus of operative facts.

We begin by analyzing Apparel's claims as contained in

its supplementary pleadings. These claims were brought in a

post-judgment supplementary proceeding in which Apparel sought to

satisfy the judgment rendered in its favor by the district court

in Apparel I. Apparel's supplementary pleadings allege numerous

instances in which Amertex, in conjunction with the other co-

defendants, acted to defraud Amertex's creditors, including

Apparel. We need not recite each and every alleged wrongdoing.

It suffices to identify the three general allegations made by

Apparel: 1) that Amertex depleted its corporate assets; 2) that

Amertex made fraudulent conveyances; and 3) that Amertex and D.J.

are alter egos of their respective presidents, Leo and Diego

Jacobson. The remedies that Apparel seeks further illustrate the

factual bases of its claims. For the alleged fraudulent

conveyances, Apparel seeks to execute the judgment in Apparel I

directly against those assets that were transferred to D.J. With

respect to the depletion of corporate assets and alter ego

allegations, Apparel seeks to make all the co-defendants jointly

and severally liable on the judgment. It is obvious on the face

of the supplementary pleadings that Apparel's cause of action in

the supplementary proceedings is the alleged effort by Amertex

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and the other co-defendants, including co-appellees, to defraud

Apparel through measures taken to prevent Apparel from collecting

on its judgment. Apparel's supplementary pleadings seek only to

satisfy the judgment. They do not raise any new legal theories

on which Apparel seeks to recover additional damages. Apparel's

supplementary pleadings can only be precluded by res judicata if

the same cause of action, i.e. the co-defendants' fraudulent

efforts to avoid execution of the judgment against Amertex, was

previously litigated to a judgment on the merits in either

Apparel I or Apparel II. Upon analysis of the causes of action

litigated in Apparel I and Apparel II, it is clear that the cause

of action raised in Apparel's supplementary pleading has never

before been litigated on the merits and simply represents

Apparel's effort to enforce the judgment already entered by the

district court in Apparel I.

In Apparel I, the district court confirmed the award

rendered by the AAA arbitrators and entered judgment for Apparel

in the amount of $387,994.00. An arbitration award generally has

res judicata effect as to all claims heard by the arbitrators.

See Pujol v. Shearson/American Express, Inc., 829 F.2d 1201,

1206-07 (1st Cir. 1987); 18 Charles A. Wright et al., Federal

Practice and Procedure 4475 (1981). A judgment by a federal

court confirming an arbitration award under the Federal

Arbitration Act has "the same force and effect, in all respects,

as, and [is] subject to all the provisions of law relating to, a

judgment in an action . . . ." 9 U.S.C 13 (1988). Therefore,

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when a federal district court enters a judgment confirming an

arbitration award pursuant to the Federal Arbitration Act, that

judgment has res judicata effect as to all matters adjudicated by

the arbitrators and embodied in their award. See 6 C.J.S.

Arbitration 148 (1975). Accordingly, to assess whether the

district court's judgment in Apparel I precludes litigation of

Apparel's supplementary pleadings, this Court must determine

whether Apparel's claims in arbitration arose from the same

nucleus of operative facts as those raised by its allegations in

the supplementary pleadings.

The claims that Apparel raised before the AAA

arbitrators arose from a common nucleus of operative facts

relating to Amertex's misconduct while entering into and

performing under the subcontract.11 This was Apparel's cause

of action and it formed the basis for the claims adjudicated by

the arbitrators and the district court's judgment confirming the

arbitrators' award. For the purposes of our res judicata

analysis, this cause of action is clearly distinct from that

raised by Apparel's supplementary pleadings. None of the factual

circumstances giving rise to Apparel's claims of depletion of

corporate assets, fraudulent conveyance, or alter ego was ever

raised before the arbitrators. Therefore, the district court's

judgment in Apparel I does not, under res judicata principles,

preclude litigation of Apparel's claims as contained in the

supplementary pleadings.

11 See supra pp. 2-3.

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Finally, the Court must consider whether the judgment

rendered by Judge Fust in Apparel II precludes the litigation of

Apparel's supplementary pleadings. Apparel's claims as contained

in its Amended Complaint were based on two separate sets of facts

and thus raised two separate causes of action. The first set of

facts gave rise to Apparel's claim that Amertex violated RICO and

included allegations that Amertex bribed government officials

while securing the prime contract and also committed mail and

wire fraud both in inducing Apparel to enter into the subcontract

and through Amertex's subsequent breaches of the subcontract.

These claims closely parallel the RICO claims raised by Apparel

in arbitration and dismissed by the AAA arbitrators for lack of

subject matter jurisdiction. As in Apparel I, the cause of

action defined by this common nucleus of operative facts is

clearly distinct from that raised by Apparel in its supplementary

pleadings.12 It does not pertain to the actions taken by

Amertex and the other co-defendants to obstruct Apparel's efforts

to collect on the judgment.

The second set of facts alleged by Apparel in Apparel

II formed the basis for essentially the same claims of fraudulent

conveyance, depletion of assets, and alter ego that Apparel

12 This Court noted the distinction between the two sets of
facts in another context in the decision in Jacobson, where it

was observed that the fraudulent conveyance "was not part of the
conduct aimed at securing the contract . . . the [fraudulent
conveyance was] too unrelated -- too separate, too distinct, too

obviously related to a simple effort to avoid a later court
judgment -- to permit a finding that, taken together with the
earlier acts, it is part of a racketeering 'pattern.'" 967 F.2d
at 724.

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raised in its supplementary pleadings. In Apparel II, Apparel

alleged that while the arbitration was pending, Amertex, along

with co-appellees and the other co-defendants, engaged in

transactions intended to defraud Amertex's creditors, including

Apparel. Accordingly, Apparel's Amended Complaint in Apparel II

prayed that Leo and Harriet Jacobson, along with Diego Jacobson

and D.J., be held jointly and severally liable to Apparel for the

amount of the judgment on the arbitration award, plus interest.

Although Apparel's Amended Complaint in Apparel II

includes claims based on the same cause of action as that raised

in the supplementary pleadings, Judge Fust 's dismissal of the

complaint in Apparel II does not preclude litigation of these

claims in the supplementary proceedings. Under a generally

accepted exception to the res judicata doctrine, a litigant's

claims are not precluded if the court in an earlier action

expressly reserves the litigant's right to bring those claims in

a later action. Kale, 924 F.2d at 1167; Restatement (Second) of

Judgments 26(1)(b) (1982). In Judge Fust 's opinion dismissing

Apparel's Amended Complaint in Apparel II, he noted that:

Essentially, the fraudulent transfer
claim is merely one aspect of plaintiff's
attempt at collection of the judgment
issued [in Apparel I]. Since plaintiff
has already begun that process in the
case before Judge P rez-Gim nez, we
cannot entertain these claims again here
without a real risk of allowing multiple
judgments to issue for the same harm
. . . . The dismissal is without
prejudice to any legitimate execution of
judgment motions which plaintiff may seek
to file before Judge P rez-Gim nez [in
the supplementary proceedings].

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Apparel Art Int'l v. Jacobson, Civil No. 90-1756 (JAF) at 6-7

(D.P.R. Aug. 21, 1991).

It is clear, therefore, that Judge Fust intended to

preserve Apparel's right to raise its fraudulent conveyance

claims in the supplementary proceedings before Judge P rez-

Gim nez. Accordingly, Judge Fust 's dismissal of Apparel's

claims in Apparel II does not preclude litigation of Apparel's

supplementary pleadings.

III. CONCLUSION
III. CONCLUSION

We reverse the district court's dismissal of Apparel's

claims as contained in the Supplementary Pleadings in Aid of

Execution of Judgment. The cause of action alleged by Apparel in

its supplementary pleadings has never before been litigated on

the merits, and therefore res judicata does not preclude its

litigation in supplementary proceedings. Apparel may well be

dissatisfied with the award it received in arbitration, as co-

appellees contend, but in this case Apparel merely seeks to

enforce the judgment rendered in its behalf by the district court

in Apparel I. Accordingly, Apparel may prosecute its claims for

depletion of corporate assets, fraudulent conveyance, and alter

ego either in the supplementary proceeding or in a separate

lawsuit.

We decline to address co-appellee's arguments regarding

the procedural inadequacy of appellant's supplementary pleadings

under Fed. R. Civ. P. 69(a) since that was not the basis for the

dismissal. All that we hold is that it was error to dismiss the

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supplementary pleadings in the supplementary proceedings on res

judicata grounds. We remand this case to the district court for

further proceedings consistent with this decision.

Reversed and Remanded. Costs to appellant.

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