Schattner v. Girard, Inc.

Decision Date12 November 1982
Docket NumberNos. 80-2304,80-2338,s. 80-2304
Citation668 F.2d 1366,215 U.S. App. D.C. 334
PartiesRobert I. SCHATTNER, Doing Business as the R. Schattner Company, Appellant, v. GIRARD, INC., an Illinois Corporation, et al. Robert I. SCHATTNER, Doing Business as The R. Schattner Company v. GIRARD, INC., an Illinois Corporation, et al., Appellants.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 80-00534).

Alan R. Malasky, Washington, D.C., with whom Earl W. Kintner and James A. Kidney, Washington, D.C., were on brief for appellant Robert I. Schattner.

Milton Eisenberg, Washington, D.C., with whom Andrea Newmark, Washington, D.C., was on brief for appellees Girard, Inc., et al.

Before WRIGHT, WALD and MIKVA, Circuit Judges.

Opinion PER CURIAM.

PER CURIAM:

The parties in this case appeal from different portions of a summary judgment entered by the district court on various commercial claims that have already been the subject of arbitration. We affirm, as we must, as to each claim and counterclaim that was or should have been determined in the arbitration. The district court also dismissed the portion of the complaint seeking equitable relief against the individual defendants who controlled the defendant corporation, holding that the corporate veil could not be pierced because plaintiff was himself a stockholder. We reverse that holding and remand for further proceedings.

I. FACTS OF THE DISPUTE

Robert Schattner is a dentist and an inventor. He developed an oral disinfectant trademarked Sporicidin and entered a licensing agreement (Agreement) with defendant Girard, Inc. (Girard) on December 26, 1978. Girard was then entirely owned by Albert Bevilacqua, its president and chief executive officer, who had purchased the corporation some two months earlier. In payment for the license, Schattner was to receive ten percent of Girard's capital stock, $75,000 outright, and sixty-five percent of Girard's gross profits up to a maximum of six million dollars. Paragraph 6 of the Agreement stated that Bevilacqua and Joseph Rosano, Girard's vice president, would use their "best efforts to diligently promote the sale" of Sporicidin. Joint Appendix (J.A.) 42. The Agreement also provided that "all disputes arising in connection with this Agreement which the parties cannot adjust between themselves shall be finally settled by arbitration." P 13, J.A. 44.

Six months later, Schattner gave notice of intent to seek arbitration under the Agreement. 1 His only specific claim against Bevilacqua and Rosano was their failure to use their "best efforts" as required by P 6 of the Agreement. Girard counterclaimed in the arbitration, alleging that Schattner's fraud and misrepresentations had caused it to enter the Agreement. In February 1980, the arbitrators ruled that Girard had breached the Agreement, and awarded Schattner $596,000 for the period of Girard's obligations through December 31, 1979. Girard's counterclaim concerning Schattner's alleged misrepresentations was rejected. The third paragraph of the terse, eight-paragraph decision also stated: "No damages are awarded against the individuals Al Bevilacqua and Joseph G. Rosano." Award of Arbitrators, February 15, 1980, J.A. 52.

It had been apparent for some time that Girard would have difficulty paying Schattner's judgment. 2 When Schattner filed a complaint in the district court to confirm the arbitrators' award, he made several additional claims against Bevilacqua and Rosano. Three of the counts alleged that Bevilacqua and Rosano had tortiously interfered with Schattner's Agreement with Girard had engaged in tortious misappropriation and conversion of Sporicidin, and had engaged in tortious acts of unfair competition. Schattner contended that these claims against the two individuals were not encompassed by the arbitration proceeding against Girard, and did not fall under the Agreement's provision that the individuals would use their "best efforts" to promote the sale of Sporicidin.

Schattner also asked the court to pierce the corporate veil of Girard and hold Bevilacqua and Rosano individually liable for the arbitrators' award. 3 Schattner alleged that he did not fully know the nature of the relationship between Bevilacqua, Rosano, and Girard, or the details of Girard's organization, financing, and control. Affidavit in Opposition to Defendants' Motion for Partial Summary Judgment, P 5, May 8, 1980, J.A. 67. He claimed that he viewed his relationship as a personal one between himself and the two individuals, and alleged that Bevilacqua had always assured him that Bevilacqua would stand behind Girard's obligations. Id. PP 6-7. Schattner argued that Bevilacqua, who still owned 90% of Girard's stock, had loaned the corporation more than $400,000 without a repayment schedule, failed to respect corporate formalities, undercapitalized Girard, and so dominated the corporation as to render it his alter ego.

Bevilacqua responded with two main counterclaims. First, he renewed the misrepresentation and fraud claim against Schattner that had been made by Girard in the arbitration. Bevilacqua contended that this claim was not encompassed by the arbitration because the Agreement had been largely between Schattner and Girard, because he was not in privity with Girard, and because he had suffered different actual damages than Girard. Bevilacqua also brought a securities claim against Schattner under section 10 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j (1976), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1981), contending that Schattner's wrongful acts had caused Bevilacqua to transfer 10% of Girard's stock to Schattner. Bevilacqua argued that the 10b-5 claim was not arbitrable because federal jurisdiction over such claims may not be waived, relying on Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953).

On July 1, 1980, the district court granted crossmotions for summary judgment and in effect confirmed the arbitration award in toto. Order, July 1, 1980, J.A. 177. The court ruled that Schattner's tort claims against Bevilacqua and Rosano should have been submitted to arbitration as "disputes arising in connection with th(e) agreement," and that defendants' claims for fraud and misrepresentation and violations of federal securities law were precluded because they were "based on the exact same allegations of misrepresentation as were made before and rejected by the arbitrators." The court also ruled that Schattner, as a minority shareholder who contracted with full knowledge of Girard's corporate organization and financing, "is estopped to contend that his co-shareholder is liable for the debts of the corporation." Id. at 4-5, J.A. 180-81. It is this latter ruling that causes us to send this case back to the trial court.

II. DISPOSITION OF THE APPEALS

A party whose claims have been decided in arbitration may not then bring the same claims under new labels. E.g., Goldstein v. Doft, 236 F.Supp. 730, 734 (S.D.N.Y. 1964), aff'd, 353 F.2d 484 (2d Cir. 1965), cert. denied, 383 U.S. 960, 86 S.Ct. 1226, 16 L.Ed.2d 302 (1966). The same is true of claims that should have been submitted to arbitration, even if they were not actually heard, for any other rule would allow parties to split their causes of action. See Brotherhood of Railroad Trainmen v. Atlantic Coast Line R. Co., 383 F.2d 225, 227 (D.C. Cir. 1967), cert. denied, 389 U.S. 1047, 88 S.Ct. 790, 19 L.Ed.2d 839 (1968). Although claims will not be barred unless they come within the scope of an arbitration agreement, see Davis v. Chevy Chase Financial Ltd., No. 80-1297 (D.C. Cir. October 15, 1981), the "strong federal policy in favor of voluntary commercial arbitration" requires that we not read the scope of such agreements too narrowly. Hanes Corp v. Millard, 531 F.2d 585, 597 (D.C. Cir. 1976).

Schattner's claims of unfair competition and interference with contract were effectively arbitrated and were correctly dismissed under this standard. See, e.g., Goldstein v. Doft, supra (claims of misrepresentation, inducement of breach of contract, and unjust enrichment cannot be litigated on tort theory when bases therefor already submitted to arbitration as part of claim for commissions due under contract); Ritchie v. Landau, 475 F.2d 151, 156 (2d Cir. 1973) (claim of fraudulent inducement dismissed on ground that plaintiff had fair opportunity to litigate claim in arbitration proceeding for breach of contract); Altshul Stern & Co. v. Mitsui Bussan Kaisha, Ltd., 385 F.2d 158, 159 (2d Cir. 1967) (cause of action for "tort of conspiracy" held to be within arbitration clause because based on claims that arose from breach of contract). The basic facts underlying these tort claims are not distinguishable from the facts at issue in the arbitration. Similarly, Bevilacqua's misrepresentation and securities claims are precluded by the arbitrators' rejection of Girard's misrepresentation claim against Schattner. Bevilacqua is the dominant shareholder of a closely held corporation, and not only controlled and assisted Girard's litigation during the arbitration, but was also a party to that arbitration. See Drier v. Tarpon Oil Co., 522 F.2d 199, 200 (5th Cir. 1975); Kreager v. General Electric Co., 497 F.2d 468, 472 (2d Cir.), cert. denied, 419 U.S. 861, 95 S.Ct. 111, 42 L.Ed.2d 95 (1974); Von Opel v. Brownell, 244 F.2d 789, 792-93 (D.C. Cir.), cert. denied, 355 U.S. 878, 78 S.Ct. 141, 2 L.Ed.2d 108 (1957). It is also clear that an arbitration decision can have res judicata effect even if the underlying claim involves the federal securities laws. Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d 242, 246 (3rd Cir. 1968); Davis v. Chevy Chase Financial Ltd., supra, slip op. at 24. Although a party is not required to arbitrate facts underlying a securities law...

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