Vulcan Chemical Technologies, Inc. v. Barker

• Citation: 297 F.3d 332
• Decision Date: 21 May 2002
• Docket Number: No. 01-1943.,01-1943.
• Parties: VULCAN CHEMICAL TECHNOLOGIES, INCORPORATED; Vulcan Materials Company, Plaintiffs-Appellees, v. Phillip J. BARKER, individually and d/b/a Sabra Asia, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

297 F.3d 332

VULCAN CHEMICAL TECHNOLOGIES, INCORPORATED; Vulcan Materials Company, Plaintiffs-Appellees, v. Phillip J. BARKER, individually and d/b/a Sabra Asia, Defendant-Appellant.

No. 01-1943.

United States Court of Appeals, Fourth Circuit.

Argued February 27, 2002.

Decided May 21, 2002.

COPYRIGHT MATERIAL OMITTED

ARGUED: Franklin Murry Tatum, III, Wright, Robinson, Osthimer & Tatum, Richmond, Virginia, for Appellant. Anton Henry Gaede, Jr., Bradley, Arant, Rose & White, L.L.P., Birmingham, Alabama, for Appellees. ON BRIEF: Mark S. Yacano, Wright, Robinson, Osthimer & Tatum, Richmond, Virginia; Hartley Thorson Hansen, Kevin Robert Culhane, Hansen, Boyd, Culhane & Watson, Sacramento, California; Stephen McQuiston Hodges, Pennstuart, Abingdon, Virginia, for Appellant. Jeffrey M. Anderson, Bradley, Arant, Rose & White, L.L.P., Birmingham, Alabama; Thomas G. Slater, Jr., Ray V. Hartwell, III, Darryl S. Lew, Geremy Kamens, Hunton & Williams, Richmond, Virginia; William B. Poff, Frank K. Friedman, R. Lucas Hobbs, Woods, Rogers & Hazlegrove, Roanoke, Virginia, for Appellees.

Before NIEMEYER and LUTTIG, Circuit Judges, and HERLONG, United States District Judge for the District of South Carolina, sitting by designation.

Vacated and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge LUTTIG joined. Judge HERLONG wrote an opinion concurring in the result.

OPINION

NIEMEYER, Circuit Judge.

We are presented with the question of whether this action should have proceeded to hearing and judgment in the face of an earlier state court judgment that involved the same parties and issues but was subject to appeal.

When Vulcan Chemical Technologies, Inc., terminated Phillip Barker's chemical-products Distribution Agreement, Barker sued the company and its parent, Vulcan Materials Company, (collectively, "Vulcan") in California state court for breach of contract and related claims. Consistent with the Distribution Agreement, Vulcan filed a motion to compel arbitration under the California Arbitration Act, and the state court granted the motion, staying further proceedings until completion of the arbitration. After the arbitrator ruled in favor of Barker, awarding him $21 million in damages, Vulcan filed this action in the Western District of Virginia to vacate the arbitration award, invoking the Federal Arbitration Act. Shortly thereafter, the California state court entered a judgment granting Barker's motion to confirm the arbitration award and denying Vulcan's motion to vacate it, a judgment that Vulcan appealed. Two months later, however, the district court vacated the very award that had been confirmed by the California court, remanding the issue of damages to the arbitrator "for a determination not inconsistent with this opinion." On appeal, Barker contends that the district court acted without jurisdiction or, alternatively, should have abstained.

We conclude that, because Vulcan filed a motion to arbitrate in California under the California Arbitration Act and a California court has confirmed the arbitration award — albeit in a judgment subject to appeal — the district court should have abstained from hearing and deciding this case. Accordingly, we vacate the district court's judgment and remand with instructions to dismiss this action.

I

Phillip Barker was one of the founders of Rio Linda Chemical Company, a Sacramento, California corporation which developed sodium chlorite and chlorine dioxide chemicals as biocides for vegetables and water treatment. In 1989, Albright and Wilson Americas, Inc., a Richmond, Virginia subsidiary of Tenneco Corporation, purchased the stock of Rio Linda. At the same time, Rio Linda entered into a consulting agreement with Barker that gave Barker the option, upon payment of a sum equal to 800% of after-tax profits, to become the exclusive distributor of sodium chlorite/chlorine dioxide chemicals in the Far East.

By 1994, Rio Linda's financial condition had deteriorated to the point that the company had a negative net worth. Around that time, Barker exercised his option to purchase the rights to distribute specified products in four countries in the Far East and, pursuant to the pre-established formula, paid the price of $32,888. (If Barker had exercised his option in 1989, he would have been required to pay approximately $5.2 million.) These distribution rights were memorialized in a Distribution Agreement between Rio Linda and Barker dated March 1, 1995.

Under the Distribution Agreement, Rio Linda appointed Barker the exclusive distributor of several Rio Linda chemical products for Japan, South Korea, Taiwan, and China. In section B.1. of the Distribution Agreement, Barker agreed (1) to "use his best efforts" in promoting and selling the products, (2) to "develop fully the market," and (3) to purchase all of his requirements of these chemical products for the specified territory from Rio Linda. The Distribution Agreement was to be governed by the law of Virginia. Finally, the parties agreed to settle any "dispute or claim arising out of or relating to this Agreement" by arbitration. The arbitration clause provided:

The arbitration shall take place in Sacramento, California, [where both Rio Linda and Barker were located] or another mutually acceptable California location and will be final and binding.... Judgment upon an award, including any interim award, rendered by the arbitrator may be entered in any Court having jurisdiction over the parties. The arbitrator may determine all questions of law and jurisdiction governing the arbitration, including questions as to whether the dispute is arbitrable. The arbitrator has the right to grant interim or permanent relief, including equitable relief, and shall have the discretion to award costs including reasonable legal fees, interest and costs of arbitration.

In mid-1995, Albright and Wilson sold Rio Linda for $12.9 million to Vulcan Materials Company, a New Jersey corporation head-quartered in Alabama. Vulcan Materials changed Rio Linda's name to Vulcan Chemical Technologies ("Vulcan Chem-Tech"), but Vulcan Chem-Tech remained headquartered in Sacramento, California. Barker has alleged that, from the time Vulcan Materials acquired Rio Linda, he detected "a concerted effort to prevent [him] from succeeding in the Asian market." He alleged that Vulcan Materials and Vulcan Chem-Tech "disparag[ed] Barker in the marketplace, ignor[ed] his exclusive rights and fail[ed] to make products available to him to sell." Ultimately, in March 1999, Vulcan Chem-Tech terminated Barker's exclusive distributorship, claiming that Barker had failed to "perform [his] obligations under the [distribution] agreement." Although the letter of termination referred to Barker's duties imposed by section B.1. of the Distribution Agreement (to "use best efforts" in promoting products, to "develop fully the market" for the products, and to purchase 100% of its requirements for the market from Rio Linda), the letter referred to no specific failures to fulfill those duties.

Shortly after receiving Vulcan Chem-Tech's letter of termination, Barker commenced an action against Vulcan Materials and Vulcan Chem-Tech in the Superior Court of California for the County of Sacramento, alleging breach of contract, violation of California's Unfair Practices Act, and related torts. Barker joined Vulcan Materials as a defendant on the allegation that Vulcan Materials was Vulcan Chem-Tech's alter ego. Relying on the arbitration clause in the Distribution Agreement and on the California Arbitration Act, both Vulcan Materials and Vulcan Chem-Tech moved to compel arbitration. When Barker resisted the motion, arguing in part that Vulcan Materials was not a party to the arbitration agreement, Vulcan Materials agreed to participate in the arbitration and to be bound by the arbitrator's decision. Explicitly relying on that agreement, the California Superior Court then granted Vulcan's motion to compel arbitration and stayed court proceedings "pending completion of arbitration." Vulcan nominated a former state judge to be the arbitrator, and Barker agreed.

The arbitration lasted 26 days, during which the parties presented the testimony of 22 witnesses and introduced 1,000 exhibits totaling 29,000 pages. Applying Virginia law, the arbitrator concluded that the evidence did not support Vulcan's claim that Barker failed to perform his responsibilities under the Distribution Agreement and that Vulcan Chem-Tech had no cause to terminate the Distribution Agreement. The arbitrator found further that the Vulcan companies "failed to fulfill their obligations under the Agreement" and to support Barker in his efforts. In addition, the arbitrator found that Vulcan "breached the covenant of good faith and fair dealing implied in every contract." Relying on the methodology proposed by Barker's expert witness, the arbitrator calculated compensatory damages, taking into account Barker's lost profits, and rendered an award of $21,128,000. In addition, the arbitrator awarded Barker costs and attorneys fees and ordered Vulcan to pay the arbitrator's costs and fees. The award was entered on March 21, 2001.

Within two days, Vulcan commenced this action to vacate the arbitration award under Section 10 of the Federal Arbitration Act in the Western District of Virginia, Big Stone Gap Division. Vulcan relied on diversity jurisdiction, as Vulcan Chem-Tech had by then relocated to Alabama, creating complete diversity between Barker and Vulcan. During the same period, Barker, after waiting the 15-day period required by California law, filed a motion in the California Superior Court to confirm the arbitration award. The parties then responded to each other's actions. Vulcan filed a motion in the California Superior Court to vacate the arbitration award, again relying on Section 10 of the Federal Arbitration Act, and Barker filed a motion in this action to stay, abstain, or dismiss. The...