Central Transport, Inc. v. Four Phase Systems, Inc.

• Decision Date: 19 June 1991
• Docket Number: No. 90-1789,90-1789
• Parties: RICO Bus.Disp.Guide 7781 CENTRAL TRANSPORT, INC.; Central Cartage Co.; and Central On Line Data Systems, Inc., Plaintiffs-Appellants, v. FOUR PHASE SYSTEMS, INC.; Motorola, Inc.; and Codex Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 256

936 F.2d 256

RICO Bus.Disp.Guide 7781

CENTRAL TRANSPORT, INC.; Central Cartage Co.; and Central

On Line Data Systems, Inc., Plaintiffs-Appellants, v. FOUR PHASE SYSTEMS, INC.; Motorola, Inc.; and Codex

Corporation, Defendants-Appellees.

No. 90-1789.

United States Court of Appeals,

Sixth Circuit.

Argued May 14, 1990.

Decided June 19, 1991.

Patrick A. Moran (argued), Terri L. North, Simpson & Moran, Birmingham, Mich., Fredric A. Smith, Nedelman, Romzek, Smith & Frank, Southfield, Mich., for plaintiffs-appellants.

Kenneth J. McIntyre, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Mich., Paul F. Ware (argued), Michael J. Tuteur, Goodwin, Procter & Hoar, Boston, Mass., for defendants-appellees.

Before JONES and RYAN, Circuit Judges, and BROWN, Senior Circuit Judge.

BAILEY BROWN, Senior Circuit Judge.

Plaintiffs-appellants, Central Transport, Inc., Central Cartage Company and Central On Line Data Systems, Inc. (COLDS), all subsidiaries of Centra, Inc., brought this action in district court against defendants-appellees, Four Phase Systems, Inc., and Codex Corporation, as well as their parent corporation Motorola, Inc., alleging the following: 1) misrepresentation against Codex; 2) breach of contract against Codex; 3) tortious interference with contract against Motorola and Four Phase; 4) tortious interference with economic opportunity and advantageous business opportunities against Motorola and Four Phase; 5) negligent interference with economic opportunity and advantageous business relationships against Motorola and Four Phase; and 6) civil violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-68, against all defendants. Pursuant to an arbitration clause contained in the agreement between COLDS and Codex, the district judge submitted the breach of contract claim to arbitration. The arbitration panel determined that no material breach of contract occurred and accordingly found for the defendant Codex.

The defendants subsequently moved for summary judgment in district court on the remaining claims. The plaintiffs then moved to vacate the arbitration award. After denying the plaintiffs' motion to vacate the arbitration award from which there is no appeal, the district court determined that plaintiffs' remaining claims were based on facts already determined in favor of the defendants by the arbitration panel. The district court, therefore, granted summary judgment for the defendants on the remaining claims under the doctrine of collateral estoppel or issue preclusion. For the reasons that follow, we AFFIRM the district court's grant of summary judgment for the defendants.

I

COLDS entered into a contract for the purchase of computer equipment and maintenance services with Codex. The parties memorialized the contract with a master agreement signed on May 20, 1981. COLDS' Vice-President, Andre Levesque, drafted the master agreement.

COLDS is a wholly owned subsidiary of Centra, Inc., a privately held company primarily engaged in the trucking industry that is not a party to this suit. Central Cartage Company, another wholly owned subsidiary of Centra, is engaged in short-haul trucking while its sister subsidiary, Central Transport, Inc., engages in long-haul trucking. COLDS exists to provide communications services linking Centra's trucking businesses. Among the plaintiffs, however, only COLDS was party to the master agreement with Codex.

Codex is a wholly owned subsidiary of Motorola. Motorola acquired Codex in 1977. At the time of the acquisition, Codex produced computer modems. Subsequent to the acquisition, Codex began producing computer terminals, including the model CDX-68 that COLDS purchased pursuant to the 1981 contract. Apparently, Motorola acquired Codex so that it could enter the market of providing IBM compatible hardware.

Prior to contracting with Codex, COLDS utilized an inefficient communications system to support Centra's trucking operations. COLDS owned computer equipment but lacked the capability to transfer information for the trucking companies from their various points of operation. Thus COLDS determined that it needed state-of-the-art terminals ¹ to allow efficient telecommunications. Subsequent to seeing Codex advertisements, COLDS approached Codex to purchase such terminals. After Codex represented to COLDS that the CDX-68 had the capability to communicate with COLDS' existing computers, COLDS entered the 1981 contract with Codex. Pursuant to this master agreement, COLDS was permitted to purchase any number of Codex products, including CDX-68 series terminals, as long as the product was listed in the master agreement's schedule A.

Codex installed the terminals during 1981, but the initial installation was accompanied by problems. By April 1982, however, the network of CDX-68's functioned adequately. In 1983, however, the Federal Communications Commission (FCC) promulgated new regulations limiting terminals' radio-frequency emissions. These regulations resulted in Codex's termination of new CDX-68 sales because the emissions were above the permitted range and Codex could not correct the problem. Codex began selling a much improved CDX-268 series terminal that met the new FCC standards. COLDS, however, only purchased used or "re-manufactured" CDX-68's from Codex to avoid the FCC prohibition.

By 1983, Motorola transferred its terminal manufacturing from Codex to Four Phase, another Motorola subsidiary. Motorola had acquired Four Phase in 1982. Four Phase had developed a Series 2000 model terminal, a more sophisticated terminal that accommodates satellite-based communications. COLDS requested purchase of the Series 2000 terminals, but Four Phase refused because the new terminal was not listed on the master agreement's schedule A. Despite the CDX-68's becoming obsolete, and Four Phase's unwillingness to provide COLDS with the Series 2000 terminals under the existing contract, the parties did not negotiate a new contract.

On January 16, 1986, the plaintiffs commenced this action by filing a six count complaint. Count I alleges misrepresentation against Codex. Count II alleges breach of contract against Codex. Count III alleges that Four Phase and Motorola tortiously interfered with the COLDS-Codex contract. Count IV alleges that Four Phase and Motorola tortiously interfered with the plaintiffs' prospective economic opportunities and advantageous business relationships. Count V alleges that Four Phase and Motorola negligently interfered with the plaintiffs' economic opportunities and advantageous business relationships. Count VI alleges that all of the defendants violated the RICO statute, 18 U.S.C. Secs. 1961-68.

On May 19, 1986, the district court granted defendants' motion to compel arbitration of the breach of contract claim. The arbitration clause contained in the master agreement is narrow, however, requiring only arbitration of the breach of contract issue. Thus, the district court postponed trial on the remaining counts pending outcome of the arbitration.

An arbitration panel, as designated by the parties in the master agreement, began proceedings on April 27, 1987. The panel considered voluminous amounts of evidence. The arbitration lasted 24 days, compiling 2,876 pages of testimony and 254 exhibits. On November 23, 1987, the panel entered its decision. It issued a clarification, however, in 1989 pursuant to an order by the district court.

The plaintiffs claimed at arbitration that Codex made misrepresentations prior to the formation of the contract regarding the products, breached warranties, delayed deliveries, used improper delivery methods, breached the compliance with law clause in the master agreement by violating FCC regulations, sold to COLDS used equipment, failed to meet maintenance obligations and lacked good faith in its dealings with COLDS. While the arbitration panel limited its decision to the breach of contract claim, the panel specifically considered the many factual allegations made by the plaintiffs and made findings. The panel held that Codex did not breach the contract other than a small technical breach that resulted in no damages to COLDS. Thus, the arbitration panel held in favor of the defendants on the breach of contract claim.

On December 11, 1987, the defendants, after receiving a favorable decision at arbitration, moved for summary judgment on the remaining claims in the district court. After denying a motion by the plaintiffs to vacate the arbitration decision, and after the remand to the arbitration panel for clarification, the district judge granted defendants' motion for summary judgment on June 15, 1990, based on the collateral estoppel effect of the arbitration proceedings. The defendants now appeal the order of the district court granting summary judgment.

II

On appeal, plaintiffs argue that the district court erred in granting summary judgment for the defendants based on the theory of collateral estoppel. The plaintiffs claim that the arbitrators' findings are not entitled to preclusive effect, in part, because the arbitrators could not decide the plaintiffs' misrepresentation, interference and RICO claims since the parties did not designate such issues for arbitration in the master agreement. The plaintiffs also contend that the decision is not entitled to preclusive effect because successful litigation in the district court of their misrepresentation claim--that Codex fraudulently induced COLDS to enter the contract--would have rendered the breach of contract claim moot. Moreover, plaintiffs claim the arbitrators' decision is not entitled to preclusive effect because COLDS did not have the opportunity to adequately litigate its case at arbitration. The plaintiffs claim that COLDS lacked this opportunity because arbitrators limited consideration to the breach of contract claim, the Federal Rules of Evidence were not applied, witnesses could not be subpoenaed and no...