Re/Max Intern., Inc. v. Zames

• Decision Date: 20 February 1998
• Docket Number: No. 1:97-CV-1589.,1:97-CV-1589.
• Citation: 995 F.Supp. 781
• Parties: RE/MAX INTERNATIONAL, INC., Plaintiff, v. Robert ZAMES, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

Page 781

995 F.Supp. 781

RE/MAX INTERNATIONAL, INC., Plaintiff, v. Robert ZAMES, et al., Defendants.

No. 1:97-CV-1589.

United States District Court, N.D. Ohio, Eastern Division.

February 20, 1998.

Stephen J. Squeri, Mark J. Andreini, Jones, Day, Reavis & Pogue, North Point, Cleveland, OH, for Plaintiff.

Edward W. Cochran, Cochran & Cochran, Shaker Heights, for Defendants.

ORDER AND OPINION

GWIN, District Judge.

On June 10, 1997, Petitioner RE/MAX International, Inc. filed a motion and application to vacate the March 11, 1997, award of arbitrators selected under the parties agreement [Doc. 1]. On January 16, 1998, Respondents Robert Zames and Zames Realty, Inc. filed an application to confirm the March 11, 1997, arbitration award [Doc. 14]. For the reasons that follow, the Court denies Petitioner RE/MAX's application to vacate the award and the Court grants Respondent Zames' motion to confirm the arbitration award.

I

Petitioner RE/MAX International, Inc. seeks an order partially vacating an arbitration award on two grounds.¹ First, Petitioner RE/MAX says the arbitrators exceeded their powers in rendering an award in a breach-of-contract claim. RE/MAX claims that an express one-year contractual limitation period in the parties' written contract barred the award. Second, Petitioner RE/MAX says this Court should vacate the award because the award was procured by fraud.

Petitioner RE/MAX is a corporation engaged in the business of selling real estate brokerage franchises. Respondent Robert Zames is an individual who made claims against RE/MAX in an arbitration. Respondent Zames Realty Inc. was the other claimant in the arbitration against RE/MAX International.

On May 9, 1991, Robert Zames, as franchisee, entered a Franchise Agreement with an affiliate of RE/MAX. On May 3, 1994, Respondents Robert Zames and Zames Realty Incorporated (collectively, "Zames") sued in the Court of Common Pleas for Lake County, Ohio, against RE/MAX International and others. The complaint generally alleged breach of contract, bad faith, wrongful use of trademarks, tortious interference of contract, and fraud arising out of the execution and performance of the Franchise Agreement.

On June 20, 1994, RE/MAX International moved to dismiss Zames' Lake County Complaint for lack of jurisdiction on two grounds. First, RE/MAX International contended that the applicable Franchise Agreement contained an enforceable arbitration clause that required Zames to submit any claims to binding arbitration under a dispute resolution system detailed in the Franchise Agreement. Second, RE/MAX International contended that the exclusive venue for the judicial enforcement of the arbitration provision and any judicial proceeding arising under the Franchise Agreement is in Denver County, Colorado.

In response, Zames' counsel's contended that they properly sited the arbitration in Ohio. Petitioner RE/MAX then suggested a new arbitration agreement. After negotiations, Petitioner RE/MAX and Zames entered a supplemental arbitration agreement dated December 1, 1994. Petitioner RE/MAX's attorneys drafted the supplemental agreement. In this supplemental agreement, Respondent Zames agreed to allow discovery that was not otherwise available under the parties franchise contract. Zames also agreed to a covenant not to bring a civil action against RE/MAX or any individual defendant associated with RE/MAX.² This supplemental arbitration agreement required the parties to submit any currently existing claims to binding arbitration in Cuyahoga County, Ohio pursuant to Section 2711 of the Ohio Revised Code.

The arbitration hearing began on December 20, 1995. On the first day of this hearing, Petitioner RE/MAX argued that Zames had failed to timely bring his claim. When the hearing reconvened for a second day, RE/MAX raised an issue whether the arbitration panel had jurisdiction because of the timeliness issue. RE/MAX recessed the hearing, claiming it would seek judicial determination of this issue. RE/MAX then delayed seeking such determination until February 1, 1996, when it filed a declaratory judgment action in the U.S. District Court for the Northern District of Ohio, Case No. 1:96-CV-213.

There, "RE/MAX International contends that the arbitration tribunal has no jurisdiction or authority to hear evidence on or decide the merits of the case" because "Zames' claims against it are all time-barred under the express terms of the Franchise Agreement."

On April 16, 1996, Judge Matia denied RE/MAX's request. He granted Zames' motion to compel arbitration.³ While RE/MAX had raised the issue of timeliness, Judge Matia decided that a covenant not to sue stopped the action. RE/MAX filed a motion to reconsider this order. On August 6, 1996, Judge Matia denied this motion to reconsider. On September 5, 1996, RE/MAX filed a notice of appeal to the Sixth Circuit from Judge Matia's judgment. On June 6, 1997, RE/MAX dismissed its appeal to the Sixth Circuit.

The parties held an arbitration hearing from January 6, 1997 through January 11, 1997.⁴ At the hearing, Zames made claims for breach of contract, bad faith, and violations of Ohio's Business Opportunity Plans Act, Ohio Rev.Code § 1335.01 et seq. At the arbitration, Petitioner RE/MAX made claim for unpaid franchise fees. Petitioner RE/MAX also claimed that the arbitration panel did not have jurisdiction because Zames failed to bring his claim within one year of accrual.⁵

On March 11, 1997, the three-member arbitration panel rendered its award and opinion. The arbitration panel rejected Zames' claims for bad faith and for violation of Ohio's Business Opportunity Plans Act but awarded Zames $100,000 on his breach of contract claim. The arbitration panel denied Petitioner RE/MAX's counterclaim for unpaid franchise fees.

II

Petitioner RE/MAX says this Court should vacate the March 11, 1997, arbitration award because it says a one-year contractual limitation period in the Franchise Agreement barred the award. RE/MAX says that provision required Respondent Zames' claims be brought within one-year of accrual.⁶ RE/MAX says it did not waive this requirement when it entered the supplemental agreement in December 1994. Petitioner RE/MAX claims the arbitrators exceeded their authority by giving Zames' an award despite Zames' purported concession that he did not file his contract claim within one year of the occurrence of the facts leading to his breach-of-contract claim.⁷ Alternatively, Petitioner RE/MAX says this Court should vacate the arbitration award because it was obtained through fraud.

Res judicata bars repetitious suits involving the same cause of action. The bar rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound not only as to every matter offered and received to sustain or defeat the claim or demand, but as to any other admissible matter that they might have offered for that purpose. Sea-Land Services, Inc. v. Gaudet, 414 U.S. 573, 94 S.Ct. 806, 39 L.Ed.2d 9 (1974); Cromwell v. County of Sac, 94 U.S. 351, 352, 24 L.Ed. 195 (1876). The judgment stops the cause of action. The parties cannot litigate any issue whatsoever, absent fraud or other factor invalidating the judgment.

The doctrine of res judicata bars a suit on a cause of action that has been judicially determined on the merits in a prior suit involving the same parties or persons in privity with them. Thus, the Court requires the concurrence of three elements: (1) identity or privity of the parties to the actions; (2) identity of the causes of action; and (3) a prior judgment on the merits. Application of these principles to the case at the bar compels the conclusion that Petitioner RE/MAX's effort to challenge the jurisdiction on the argument of timeliness may not be relitigated. Associated General Contractors of Massachusetts v. Boston Dist. Council of Carpenters, 642 F.Supp. 1435 (D.Mass.1986).

Res judicata embodies two preclusion ideas: "issue preclusion" and "claim preclusion." Issue preclusion refers to the effect of a judgment in foreclosing relitigation of a matter that has previously been litigated and decided. Claim preclusion refers to the effect of a judgment in foreclosing litigation of a matter that has never been litigated because of a determination that the matter should have advanced in an earlier suit. Claim preclusion therefore encompasses the law of merger and bar.⁸ Heyliger v. State University and Community College System of Tennessee, 126 F.3d 849, 852 (6th Cir. 1997); Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984).

There is no dispute that identity of the parties is present here. Secondly, there is sufficient identity of the causes of action. The critical inquiry here is whether the facts underlying the claims are identical and whether Judge Matia's judgment stops this action though it did not explicitly deal with the timeliness issue.

Advancing a new theory of recovery or seeking a new remedy cannot overcome res judicata's bar if the claim grows out of the same transaction, occurrence or agreement upon which a party based the previous claim. Here, a comparison of the factual predicates of both federal suits shows the identity of the asserted causes of action. In both, RE/MAX claimed the arbitration panel did not have jurisdiction because Zames failed to make a timely claim.

In the first litigation in federal court, Judge Matia did not explicitly determine RE/MAX's claim that the arbitration panel did not have jurisdiction because the demand was not timely brought. Where a judgment is rendered generally for the defendant, in a court of competent jurisdiction, the judgment must be considered as covering the...