Labor & Employment Law Daily Wrap Up, PROCEDURE—2d Cir.: Prior state court dismissals did not preclude former CEO’s Section 1983 claim, (Aug 11, 2026)

By Kathleen Kapusta, J.D.

“What, then, is a district court to do where, as here, a New York state court has issued a final judgment on the merits regarding some claims, while dismissing without prejudice related claims that arose from the same transaction?”

Vacating a district court’s dismissal on res judicata grounds of the Section 1983 claim asserted by Roosevelt Island Operating Corporation’s (RIOC) former CEO, who, after two unsuccessful state court proceedings brought a federal claim for money damages alleging her termination and public smearing by state officials deprived her of a liberty interest without due process of law, the Second Circuit explained that the Section 1983 claim was never adjudicated on the merits by either state proceeding but was instead dismissed with leave to refile. “Under New York Law,” said the court, “the doctrine of res judicata does not bar a claim that was previously dismissed without prejudice and with express leave to refile—even where other claims arising from the same transaction were dismissed on the merits” (Rosenthal v. Roosevelt Island Operating Corp., No. 25-1667 (2d Cir. Aug. 10, 2026)).

The plaintiff served as president and CEO of RIOC—a public benefit corporation that governs New York’s Roosevelt Island—from June 2015 to June 2020 as an at-will state employee. During her tenure, she became concerned about risks to the island posed by a network of steam tunnels that acted as a protective sea wall. When an engineering team she commissioned to study the tunnels determined that a major weather event could pose catastrophic results for the island, she wrote a memorandum outlining what she saw as unacceptable risks to public safety due to the state’s inaction.

Termination. Her complaints, she alleged, raised the ire of the governor who placed a target on her back for retaliation and in June 2020, she was informed that she had been terminated. An article published that same day by the New York Post, titled “Roosevelt Island Operating Corp. head fired over ‘racially and sexually offensive’ remarks,” stated an investigation into a complaint made to the governor’s office “substantiated that the president had used racially and sexually offensive language, in clear violation of state policy and the strict standards set by this Administration.”

The investigation had been conducted by an employee of the New York Governor’s Office of Employee Relations who claimed that, during the investigation, she discovered additional allegations of inappropriate behavior by the CEO. The CEO, in response, alleged she was pretextually terminated and smeared in the press for her safety complaints.

Article 78 proceeding. She commenced an Article 78 special proceeding in New York Supreme Court challenging her termination. Dismissing her petition in its entirely, the presiding justice found the state officials’ “determination to terminate petitioner clearly was not irrational.” The presiding justice, however, noted that “[T]he people to whom petitioner allegedly said these insensitive, actionable remarks could be lying; but the appropriate forum to determine that would be a trial in a plenary action.”

Plenary action. While the Article 78 proceeding was pending, the CEO also commenced a plenary action in the New York Supreme Court against the same parties alleging state and federal claims of discrimination, a Section 1983 claim, and claims for defamation and retaliation. Finding that the Article 78 dismissal was a final judgment on the merits that precluded any claims grounded in unlawful discrimination, the court dismissed the discrimination claims with prejudice. It dismissed all other claims, including the Section 1983 claim “without prejudice as they were improperly brought in Supreme Court, instead of before the Court of Claims which has jurisdiction over claims against New Yo[r]k State” and the First Department affirmed. Alternatively, the Supreme Court invited the CEO to refile the dismissed claims against the defendants in their individual capacities.

Federal court action. The CEO then brought suit in federal court alleging her termination, coupled with the public smearing by state officials and the denial of the opportunity to clear her name at an appropriate hearing, deprived her of a liberty interest without due process and thus entitled her to money damages. Dismissing on res judicata grounds, the district court found there had been two final judgments on the merits regarding her claims raised in connection with her termination from RIOC, and because her Section 1983 claim arouse from the same transaction as her claims in state court, it was barred.

Plenary action dismissal. Addressing first on appeal the district court’s dismissal of the plenary action, the Second Circuit found it could not have preclusive effect because it did not dismiss the CEO’s Section 1983 claim on the merits. Rather, the plenary action dismissed her discrimination claims with prejudice and thus she could not relitigate those claims. And while the appeals court explained that a final judgment on the merits normally precludes a plaintiff from filing other claims arising from the same transaction, it pointed out that the New York Supreme Court dismissed her Section 1983 claim without prejudice and “it is long settled that a ‘dismissal’ ‘without prejudice’ lacks a necessary element of res judicata” because “such a judgment is not a final determination on the merits.”

New York Court of Appeals. Although the court noted that it has not squarely addressed the scenario of a New York state court issuing a final judgment on the merits regarding some claims while dismissing without prejudice related claims that arose from the same transaction, it explained that “the New York Court of Appeals has resolved precisely this conundrum by adopting the relevant Restatement exception permitting a plaintiff to refile specific claims—notwithstanding a final judgment on the merits as to other claims arising from the same transaction—where ‘[t]he court in the first action has expressly reserved the plaintiff’s right to maintain the second action.’”

In other words, the Second Circuit observed, “while a final judgment on the merits normally extinguishes all other claims arising from the same transaction, a concurrent dismissal without prejudice for some claims preserves a plaintiff’s ability to refile those specific claims in a second action,” which is what the plenary decision did here by dismissing the CEO’s Section 1983 claim without prejudice and inviting her to refile the claim in a different court. Thus, said the appeals court, the district court erred in concluding that the plenary judgment was a final judgment on the merits that precluded the CEO’s Section 1983 claim.

Article 78 dismissal. Nor could the Article 78 dismissal preclude her Section 1983 claim, said the court, noting that the Article 78 court decided only that the CEO failed to meet the high burden for expedited relief of an Article 78 proceeding. As to her claim that the proffered basis for termination was itself the product of false allegations by lying witnesses and a sham investigation, the Article 78 court observed in its dismissal that “the appropriate forum to determine that would be a trial in a plenary action” and that the “instant dispute belongs there, not here.”

And even if the Article 78 proceeding were considered to have impliedly adjudicated the CEO’s discrimination claims, as the New York State Supreme Court later concluded, the Second Circuit explained that “it is settled law that a ‘judgment in a ‘pure’ Article 78 proceeding,’ such as this one, ‘does not preclude, under the doctrine of res judicata, a later section 1983 damages claim based on the same set of facts.’”

The case is No. 25-1667.

Judge: Preska, L.

Attorneys: Steven G. Storch (Storch Byrne) for Susan G. Rosenthal. Holly G. Rogers (Melick & Porter) for Roosevelt Island Operating Corporation. Stephen J. Yanni, New York State Attorney General’s Office, for Joseph Rabito, Kumiki Gibson, and Simonida Subotic.

Companies: Roosevelt Island Operating Corp.

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