Riverdale Development v. Ruffin Bldg. Sys.

Citation356 Ark. 90,146 S.W.3d 852
Decision Date12 February 2004
Docket NumberNo. 03-244.,03-244.
PartiesRIVERDALE DEVELOPMENT COMPANY, LLC, v. RUFFIN BUILDING SYSTEMS, INC.
CourtSupreme Court of Arkansas

Kaplan, Brewer, Maxey & Haralson, P.A., by: Philip E. Kaplan, Little Rock, for appellant.

Williams & Anderson PLC, by: David M. Powell and Sarah M. Priebe, Little Rock, for appellee.

TOM GLAZE, Justice.

This appeal requires us to determine the preclusive effect of an arbitration award with respect to one who was not a party to the arbitration. Because this is an issue of first impression in this state, our jurisdiction is proper under Ark. Sup.Ct. R. 1-2(b)(1). This is also a subsequent appeal following other appeals decided by this court. See May Constr. Co. v. Riverdale Develop. Co., 345 Ark. 239, 45 S.W.3d 815 (2001); May Constr. Co. v. Thompson, 341 Ark. 879, 20 S.W.3d 345 (2000).

On August 30, 1996, appellant Riverdale Development Company ("Riverdale") entered into a contract with May Construction Company ("May") for construction of a commercial office building located at 2102 Brookwood Drive in Little Rock. Included in the project was May's erection of a pre-engineered metal building manufactured by appellee Ruffin Building Systems, Inc. ("Ruffin"), a Louisiana company from which May purchased the materials for construction.

Disputes began arising between May and Riverdale regarding the completion of the project. The contract between May and Riverdale contained a provision requiring arbitration of contract disputes between the parties, and on May 13, 1999, May initiated arbitration with Riverdale pursuant to the construction contract. However, on May 25, 1999, Riverdale filed suit against May in Pulaski County Circuit Court, and one year later, on May 19, 2000, Riverdale filed an amended complaint that also named Ruffin as a defendant. The complaint raised claims of negligence, breach of implied warranties, defective product, and fraud and constructive fraud.

Although Riverdale initially contested arbitration, Riverdale and May eventually arbitrated their dispute in a hearing that lasted from July 22-26, 2002. The arbitrator ultimately ruled in May's favor, finding that May did not materially breach the contract between the parties, and was excused from further performance by Riverdale's wrongful exclusion of May from the project site. Although the arbitrator noted some conflicts in the testimony regarding the alleged defects in the building and the design of the building and its mechanical and structural components, the arbitrator found that May's witnesses were more credible. All of Riverdale's claims were denied in their entirety, and Riverdale was ordered to pay May the balance owing on the contract, plus attorney's fees. The arbitrator's findings were issued on August 8, 2002.

Just prior to the arbitrator's decision, May filed a motion in the circuit court case to dismiss Riverdale's claims against it, arguing that the pleadings in the arbitration case and the circuit court case mirrored each other, and that Riverdale's circuit court claims were barred under res judicata and collateral estoppel; the trial court agreed and granted the motion on August 16, 2002. On August 14, 2002, after the arbitrator's decision was issued on August 8, Ruffin filed a motion for summary judgment, contending that there were no genuine issues of material fact, because Riverdale's claims were "barred under the doctrine of collateral estoppel, since all issues material to this case have been fully presented and determined ... before the American Arbitration Association."

Following a hearing on October 22, 2002, the trial court entered its order granting Ruffin's motion for summary judgment, holding that "a third party such as Ruffin is entitled to rely upon an arbitration award such as [the one] here under the doctrines of collateral estoppel or res judicata, even though not a party to the contract providing for arbitration and even though [Riverdale] did not agree to bind itself to an arbitration award with regard to other parties." From this order, Riverdale brings this appeal, raising as its sole point the argument that the trial court erred in granting summary judgment in favor of Ruffin on the grounds of collateral estoppel based on a finding in an arbitration proceeding to which Ruffin was not a party.

Summary judgment is to be granted by a trial court only when it is clear that there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law. Craighead Elec. Coop. Corp. v. Craighead County, 352 Ark. 76, 98 S.W.3d 414 (2003); Cole v. Laws, 349 Ark. 177, 76 S.W.3d 878 (2002); George v. Jefferson Hosp. Ass'n, Inc., 337 Ark. 206, 987 S.W.2d 710 (1999). Once the moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. Id. On appellate review, we determine if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of its motion leave a material fact unanswered. Id. This court views the evidence in a light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. Adams v. Arthur, 333 Ark. 53, 969 S.W.2d 598 (1998).

The questions to be answered in this case are (1) whether collateral estoppel will apply to bar Riverdale's suit against Ruffin, a third party who was not involved in the arbitration, and (2) whether, if collateral estoppel does apply, the elements have been established. Collateral estoppel, or issue preclusion, bars relitigation of issues, law, or fact actually litigated in the first suit. Crockett & Brown, P.A. v. Wilson, 314 Ark. 578, 864 S.W.2d 244 (1993); John Cheeseman Trucking, Inc. v. Pinson, 313 Ark. 632, 855 S.W.2d 941 (1993). For collateral estoppel to apply, the following four elements must be met: 1) the issue sought to be precluded must be the same as that involved in the prior litigation; 2) that issue must have been actually litigated; 3) the issue must have been determined by a valid and final judgment; and 4) the determination must have been essential to the judgment. Crockett & Brown, supra; Fisher v. Jones, 311 Ark. 450, 844 S.W.2d 954 (1993). Unlike res judicata, collateral estoppel does not require mutuality of parties before the doctrine is applicable. Id. (citing Fisher v. Jones, supra).

Ordinarily, collateral estoppel is relied upon by a defendant to preclude a plaintiff from relitigating an issue that has previously been decided adversely to the plaintiff. Johnson v. Union Pacific Railroad, 352 Ark. 534, 104 S.W.3d 745 (2003). This "defensive collateral estoppel" is the manner in which the doctrine is sought to be applied in the present case. Another form of collateral estoppel, "offensive collateral estoppel," is more controversial, although it has been specifically approved by this court. See Johnson v. Union Pacific, supra. Offensive collateral estoppel occurs when a plaintiff seeks to foreclose the defendant from litigating an issue the defendant has previously litigated unsuccessfully in an action with another party. Johnson, 352 Ark. at 545, 104 S.W.3d 745 (citing Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979)). The Johnson court concluded that this rule should be available only in limited cases, and that the trial court should be given broad discretion to determine if it should be applied. The present case, however, does not involve the use of offensive collateral estoppel; instead, the court is only concerned with the defensive application of the doctrine. On appeal, Riverdale argues that a private arbitration decision should have no collateral estoppel effect in favor of third parties, and that to hold otherwise would defeat principles of fairness and equity and produce unjust results. In making its argument, Riverdale relies primarily on four cases: Federal Folding Wall Corp. v. National Folding Wall Corp., 340 F.Supp. 141 (S.D.N.Y.1971); Young v. Metropolitan Prop. & Cas. Ins. Co., 60 Conn.App. 107, 758 A.2d 452 (2000); Pace v. Kuchinsky, 347 N.J.Super. 202, 789 A.2d 162 (2002); and Vandenberg v. Superior Court, 21 Cal.4th 815, 982 P.2d 229, 88 Cal.Rptr.2d 366 (1999).

However, these cases are neither instructive nor applicable here. The first two—Federal Folding Wall and Young— involve the use of offensive collateral estoppel. In Federal Folding Wall, National Folding Wall lost a case in arbitration, wherein an arbitrator had determined that National had lost the right to use the trade name "Fairhurst." Subsequent to that decision, Federal sued National, alleging that National had infringed upon Federal's right to use the "Fairhurst" name. In its lawsuit, Federal sought a summary judgment on the basis of the arbitrator's award, but the trial court denied the motion, stating without explanation that "[t]he award of the arbitrators ... is not res judicata as to any issues before the court." Federal Folding Wall Corp., 340 F.Supp. at 146.

In the case of Young v. Metropolitan Property & Casualty, supra, the Connecticut court of appeals declined to apply offensive collateral estoppel to bind a nonparty to an arbitration to the results of the arbitration. In that case, the plaintiff, Young, was involved in a car accident. The car he was driving belonged to his employer, and was insured through defendant Metropolitan. Young's own insurance carrier was Continental. Young and Continental engaged in arbitration regarding the amount and availability of underinsured motorist coverage; although the two parties invited Metropolitan to participate in the arbitration, Metropolitan declined. The arbitration proceeding resulted in an award of damages for Young. Following the decision of the arbitrator, Young filed a motion for summary judgment against Metropolitan, arguing that...

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