Wills v. Arizon Structures Worldwide, L.L.C.

• Decision Date: 27 May 2016
• Docket Number: No. 15-41166,15-41166
• Citation: 824 F.3d 541
• Parties: David Wills ; James Salmon, Plaintiffs–Appellants v. Arizon Structures Worldwide, L.L.C. ; Johnson–Marcraft, Incorporated, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

824 F.3d 541

David Wills ; James Salmon, Plaintiffs–Appellants

v.Arizon Structures Worldwide, L.L.C. ; Johnson–Marcraft, Incorporated, Defendants–Appellees.

No. 15-41166

United States Court of Appeals, Fifth Circuit.

FILED May 27, 2016

John Da Grosa Smith, Esq., Kristina M. Jones, Smith, L.L.C., Atlanta, GA, for Plaintiffs–Appellants.

Charles David Goerisch, Lewis, Rice, L.L.C., Saint Louis, MO, Tom M. Harrison, Hornblower Firm, Corpus, Christi, TX, for Defendants–Appellees.

Before KING, SOUTHWICK, and HAYNES, Circuit Judges.

HAYNES

, Circuit Judge:

Petitioners David Wills and James Salmon appeal the district court's dismissal of their petition to compel arbitration under 9 U.S.C. § 4

, arguing that the district court erred in holding that their petition was barred by collateral estoppel. Respondents Arizon Structures Worldwide, LLC (“Arizon”) and Johnson–Marcraft, Inc. (“JMI”) (collectively, the “Arizon Entities”) contend that the district court properly concluded that the prior Missouri Circuit Court's judgment denying arbitration precluded the district court from considering the question of arbitrability in this case. Because we conclude that the district court incorrectly held that Wills and Salmon (collectively, “Employees”)¹ were in privity with the party to the Missouri Circuit Court's judgment, we REVERSE and REMAND.

I. Background

Arizon designs, manufactures, and sells air structures. JMI is an affiliate of Arizon. Wills and Salmon are employees of Global Blue Technologies-Cameron, LLC (“GBT”), which raises, harvests, and sells shrimp using large man-made ponds that are covered by air structures supplied by Arizon. In April 2013, GBT entered into an agreement with Arizon and JMI (the “Agreement”), which provided, inter alia, that “any dispute relating to [the] Agreement or any other matter shall be fully and finally resolved by binding Arbitration under the Rules of the American Arbitration Association (“AAA”).” A few weeks later, Arizon issued three Quotations offering to sell three air structures. The Quotations listed Wills, Salmon, and GBT and its affiliates² as the “buyers,” and contained a combination forum-selection arbitration clause. Wills and Salmon initialed and signed the Quotations on April 29, 2013. A dispute between the parties later arose.

A. Missouri State Court Proceedings

On December 11, 2014, Arizon filed suit in the Circuit Court of St. Louis County, Missouri (the “Missouri trial court”), alleging breach of contract against Wills, Salmon, and four GBT-related corporate entities. A few days later, before GBT had been served with the petition in the state court action, GBT filed a demand for arbitration with the AAA against Arizon and JMI, as well as Ron Scharf, the chairman of Arizon and JMI, and Jan Ligas, Arizon's President. Wills and Salmon were not parties to this proceeding.

Arizon filed an amended petition in the Missouri trial court on January 7, 2015, adding a count seeking a declaratory judgment that any claims between the parties must be litigated in the Missouri trial court and are not properly subject to arbitration. Arizon also filed a motion to stay the arbitration proceeding initiated by GBT with the AAA. JMI, Scharf, and Ligas filed a motion to intervene.

On January 21, 2015, counsel for Wills, Salmon, and GBT entered an appearance in the Missouri trial court. Wills and Salmon filed a motion for extension of time to file a responsive pleading, stating that GBT would be filing a motion to compel arbitration no later than January 28, 2015, and that “if the Court determines that this matter should be heard in arbitration, the claims against the Individual Defendants would be disposed of without the need for further judicial involvement or for the Individual Defendants to respond to the Complaint.”

GBT then filed its motion to compel arbitration, requesting that the Missouri trial court enter an order compelling Arizon to arbitrate its claims. GBT also filed its opposition to Arizon's motion to stay arbitration. On February 10, 2015, the Missouri trial court held a hearing and entered an order granting Arizon's motion to stay arbitration (the “February 10 Order”). On April 8, 2015, the Missouri trial court entered a “judgment” (the “April 8 Judgment”) affirming the February 10 Order and expressly denying GBT's motion to compel arbitration. GBT appealed the denial of its motion to compel arbitration, and the Missouri Court of Appeals stayed the trial court proceedings pending appeal as to the GBT defendants only.

On April 29, 2015, Wills and Salmon filed a motion to dismiss Arizon's claims against them for lack of personal jurisdiction, lack of subject matter jurisdiction, and failure to state a claim. The Missouri trial court denied the motion. On July 22, 2015, Wills and Salmon filed a motion to compel arbitration, which the Missouri trial court denied on August 19, 2015 (the “August 19 Judgment”).

On October 6, 2015, the Missouri Court of Appeals affirmed the Missouri trial court's April 8 Judgment, concluding that “[b]ecause the subsequently executed contract's dispute resolution conflicted with and thereby superseded the earlier arbitration agreement, ... the trial court did not err in denying [GBT's] motion to compel arbitration and granting [Arizon's] motion to stay arbitration.” The Missouri Supreme Court denied review of the court of appeals's decision on December 7, 2015.

Wills and Salmon filed a petition for a writ of prohibition with the Missouri Court of Appeals on January 8, 2016, challenging the Missouri trial court's denial of their motion to dismiss for lack of personal jurisdiction. The Missouri Court of Appeals granted the petition, concluding that Wills and Salmon were not parties to the Quotations in their personal capacities and holding that the trial court lacked personal jurisdiction over them. The court of appeals directed the trial court to dismiss Wills and Salmon from the trial court proceeding for lack of personal jurisdiction.³

B. Texas Federal Court Proceedings

On April 29, 2015, Employees filed a petition to compel arbitration under 9 U.S.C. § 4

in the Southern District of Texas seeking to compel arbitration of any claims arising out of the Agreement. The Arizon Entities filed a motion to dismiss the petition, arguing that res judicata and/or collateral estoppel required dismissal of the petition. Employees then filed a motion for preliminary injunction and temporary restraining order.

On August 13, 2015, the district court conducted a hearing on the Arizon Entities' motion to dismiss and at the end, orally granted the motion to dismiss and concluded that it was unnecessary to address Employees' motions for a preliminary injunction and temporary restraining order. In its subsequent written order granting the motion to dismiss, the district court held that the Missouri trial court's April 8 Judgment was entitled to preclusive effect under the doctrine of res judicata because (1) Wills and Salmon were in privity with GBT with respect to their request to compel; and (2) the April 8 Judgment was final for purposes of res judicata.⁴ This appeal followed.

II. Discussion

Whether collateral estoppel⁵ applies is a question of law, which we review de novo. Bradberry v. Jefferson Cty. , 732 F.3d 540, 549 (5th Cir. 2013)

. “In determining the preclusive effect of an earlier state court judgment, federal courts apply the preclusion law of the state that rendered the judgment.” Weaver v. Tex. Capital Bank N.A. , 660 F.3d 900, 906 (5th Cir. 2011). Here, because the underlying judgment is from the Missouri Circuit Court, Missouri preclusion rules apply. Under Missouri law, collateral estoppel “precludes relitigation of an issue previously decided and incorporated into an earlier judgment.” Sexton v. Jenkins & Assocs. , 152 S.W.3d 270, 273 (Mo. 2004) (en banc). In determining whether collateral estoppel applies, Missouri courts consider four factors:

(1) whether the issue decided in the prior adjudication was identical to the issue presented in the present action; (2) whether the prior adjudication resulted in a judgment on the merits; (3) whether the party against whom estoppel is asserted was a party or was in privity with a party to the prior adjudication; and (4) whether the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the prior suit.

James v. Paul , 49 S.W.3d 678, 682 (Mo. 2001)

(en banc) (citing Oates v. Safeco Ins. Co. of Am. , 583 S.W.2d 713, 719 (Mo. 1979) (en banc)). Employees contend that the district court erred in concluding that (1) the Missouri trial court's judgment was a final judgment on the merits, and (2) Employees were in privity with their employer, GBT, such that the judgment denying arbitration precludes their Section 4 petition to arbitrate. Because we hold that the district court erred in concluding that Wills and Salmon were in privity with GBT, we need not reach the question of whether the April 8 Judgment was a final judgment for purposes of collateral estoppel.

Under Missouri law, “[p]arties are in privity for collateral estoppel purposes if the interests of the non-party are so closely related to the interests of the party, that the non-party can be fairly considered to have had his day in court.” Mo. Mexican Prods., Inc. v. Dunafon , 873 S.W.2d 282, 286 (Mo. Ct. App. 1994)

. “[P]rivity is not established between two people merely because they both have an interest in proving or disproving the same set of facts.” Steinhoff v. Churchill Truck Lines, Inc. , 875 S.W.2d 175, 177 (Mo. Ct. App. 1994)

.

The Arizon Entities contend that, while Employees were not a “party” to the Missouri trial court's April 8 Judgment denying GBT's motion to compel arbitration, they were in privity with GBT, because they share an identity of interests in connection with the arbitration issue such that they are bound by the judgment. Employees counter that the Missouri trial court's order against GBT does...