Sidag Aktiengesellschaft v. Smoked Foods Products Co., Inc.

• Decision Date: 19 November 1985
• Docket Number: No. 84-4664,84-4664
• Citation: 776 F.2d 1270
• Parties: SIDAG AKTIENGESELLSCHAFT, a Corporation of Switzerland and Sicilia Di R. Biebow & Co., a Limited Partnership of Italy, Plaintiffs-Appellants, v. SMOKED FOODS PRODUCTS CO., INC., a Corporation of the State of Mississippi, Marcus Cox, Ronald C. Cox and Sales U.S.A., Inc., Defendants-Third Party Plaintiffs-Appellees, v. Sicilia Di R. BIEBOW, Rolf Biebow & Eurolim, Ltd., Third Party Defendants- Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1270

776 F.2d 1270

SIDAG AKTIENGESELLSCHAFT, a Corporation of Switzerland and Sicilia Di R. Biebow & Co., a Limited Partnership of Italy, Plaintiffs-Appellants, v. SMOKED FOODS PRODUCTS CO., INC., a Corporation of the State

of Mississippi, Marcus Cox, Ronald C. Cox and

Sales U.S.A., Inc., Defendants-Third

Party Plaintiffs-Appellees, v. Sicilia Di R. BIEBOW, Rolf Biebow & Eurolim, Ltd., Third

Party Defendants- Appellants.

No. 84-4664.

United States Court of Appeals, Fifth Circuit.

Nov. 19, 1985.

Ringer, Clapp & Clark, Roger C. Clapp, Florence, Miss., Stephen Schnitzer, Livingston, N.J., and Morris M. Schnitzer, Newark, N.J., for plaintiffs-appellants.

Young, Scanlon & Sessums, James Leon Young and E. Stephen Williams, Jackson, Miss., for Marcus Cox and Smoked Foods.

L. Dan Tucker, John M. Cone, Dallas, Tex., for Ronald Cox & Sales.

Appeal from the United States District Court for the Southern District of Mississippi; John R. Countiss, III, Magistrate, Presiding.

Before CLARK, Chief Judge, POLITZ and JONES, Circuit Judges.

OPINION

EDITH HOLLAN JONES, Circuit Judge:

Appellants Sidag, A.G. and Sicilia Di R. Biebow & Company (collectively, "Sicilia") challenge the Mississippi trial court's dismissal of two defendants and partial summary judgment in favor of the remaining two defendants on grounds of res judicata and collateral estoppel. Sicilia created the litigational concoction from which it seeks relief when it filed two simultaneous lawsuits, in Texas and Mississippi, for breach of an exclusive citrus juice distributorship agreement. Sicilia lost in Texas, providing the basis for some preclusive relief to the defendants. We affirm the dismissal and reverse and remand with respect to the partial summary judgment.

I. THE FACTS

In 1967, Sicilia, a foreign producer of lemon and lime juice, contracted with defendant Smoked Foods, headquartered in Mississippi, to market Sicilia's lemon juice in the United States. The contract provided that while it was in effect Smoked Foods was "not to sell, use, represent or be interested in any competing lemon juice products." Further, if Smoked Foods terminated the contract without just cause a five-year covenant not to compete would arise against Smoked Foods. Defendant Marcus Cox was at that time the president of Smoked Foods. In 1970 Marcus Cox's son, defendant Ronald Cox, moved to Dallas, Texas, and there formed U.S. Marketing, a firm that bought Sicilia's lemon juice from Smoked Foods, at a profit to Smoked Foods, for resale in the southwest United States. In 1974 Ronald Cox succeeded his father as president of Smoked Foods, but Marcus Cox remained active in the business, and Ronald Cox continued to run U.S. Marketing in Dallas. In 1975 Sicilia and Smoked Foods amended their contract to include lime juice as well as lemon juice and to require payment in Swiss francs only. Within two years, a changing currency market rendered Swiss franc payments onerous to Smoked Foods and began to reduce its sales of Sicilia juices. The relations between manufacturer and distributor suffered.

In early 1978, unknown to Sicilia, Ronald Cox explored the possibility of competing with Sicilia. He contacted a bottle designer and asked various suppliers for price quotations. At about the same time, unknown to Ronald or Marcus Cox, Sicilia sought out another possible distributor, Hagmann & Hagmann (H & H), which recommended to Sicilia an attorney who would explore ways of breaking the contract with Smoked Foods. In August, 1978 Marcus Cox requested prices for limes from a possible supplier. Sicilia's discovery of this request led it to direct a telex message on October 20 to Marcus Cox containing questions and directives about their contract and requiring a reply no later than October 24. (By this time, Sicilia had confirmed a first shipment of products to H & H.) Marcus Cox responded to the telex on October 25, explaining that he had just returned from vacation. Nevertheless, on November 22, Sicilia terminated Smoked Foods' distributorship allegedly due to Marcus' failure to reply timely to the October telex. In December 1978, Marcus Cox sent an order for lime juice to Sicilia, but Sicilia rejected it immediately, reiterating that the contract was terminated.

Ronald Cox, having decided to compete with Sicilia during the fall, 1978, formed a new company, the defendant Sales, U.S.A. ("Sales"), which marketed its first lime juice in mid-1979 under the brand name 'Pompeii.' In November 1979, Sicilia filed suit against Smoked Foods and Marcus and Pauline Cox in federal district court in Mississippi, and against Sales and Ronald Cox in federal district court in Texas.

II. THE ISSUES

The Mississippi district court dismissed Sales as a defendant and also entered partial summary judgment on Count V of Sicilia's claim against Marcus Cox and Smoked Foods. Appellants present this court with two principal issues. The first is whether Sicilia is bringing the same claim against Ronald Cox and Sales in the Mississippi court that it brought and lost against them in the Texas court. If it is the same claim, Sicilia would normally be precluded under the doctrine of res judicata from relitigating that claim. The second issue is whether Sicilia should be precluded from asserting Count V, part of which repeats the breach of contract allegations litigated in Texas, against new defendants, Smoked Foods and Marcus Cox. Proper analysis of these issues requires a careful review of the matters pending in each forum.

III. PROCEDURAL HISTORY

(a) The Texas Litigation

Sicilia alleged three counts against Ronald Cox and Sales in Texas: unfair trade dress imitation under Sec. 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), breach of the Sicilia-Smoked Foods contract, and patent infringement. ¹

The Texas court's judgment, rendered in August 1982, in favor of Ronald Cox and Sales following a bench trial, was summarized by a panel of this Court on appeal.

On Sicilia's contract claim, the district court found that Sicilia had expressly terminated the contract either by its November 1978 telex or by that of December 1978. Since Sicilia terminated the contract, the covenant not to compete was not activated. Only Smoked Foods' termination of the contract without just cause would trigger the non-compete covenant.

The district court found that Smoked Foods has no ownership or financial interest in Sales, that Ron was not a party to the Sicilia-Smoked Foods contract, and that the corporations were not mere alter egos of Marcus or Ron Cox. The court therefore refused to "pierce the corporate veil," held that neither of the two non-compete provisions had been breached [that is, neither the five-year clause nor the agreement that Smoked Foods as Sicilia's exclusive distributor would distribute lemon and lime juice only from Sicilia], and dismissed Sicilia's contract claims.

Neither Sales nor Ron Cox was a party to the Sicilia-Smoked Foods distribution contract.

Assuming that Cox and Sales were obligated under the Sicilia-Smoked Foods contract, Sicilia still could not prevail on its contract claim. The district court found that neither Ron's nor Marcus' actions constituted a repudiation and that Sicilia terminated the contract. Since Smoked Foods did not terminate the contract, the five-year covenant not to compete was not triggered. Moreover, Smoked Foods was not "interested in" a competing product while the distribution contract was in effect. Sicilia had terminated by the end of 1978, and appellees had not produced or sold any citrus juice prior to that time.

732 F.2d 417, 434-435 (1984). This Court affirmed the judgment on Sicilia's contract action, but reversed and remanded the Lanham Act claim.

(b) The Mississippi Litigation

In Mississippi, Sicilia alleged five counts against Smoked Foods, and Marcus and Pauline Cox. The first four concerned certain funds allegedly due to Sicilia that were being held by Smoked Foods. The fifth count amended in January 1981 to join Ron Cox and Sales as defendants (and to dismiss Pauline Cox), quoted the same relevant contractual provisions as the Texas pleadings, and it alleged essentially the same breaches of contract. In addition, the fifth count referred to the preceding four counts and alleged the violation by defendants of Miss.Code Sec. 97-23-85 (1972), which prohibits and punishes secondary boycott conspiracies.

In October, 1982, Smoked Foods moved to amend its answer and to obtain partial summary judgment because the just-entered judgment in Texas precluded assertion of Sicilia's fifth count in Mississippi. Ron Cox and Sales also sought summary judgment as to the fifth count, and all defendants were awarded this relief in August, 1983.

Sicilia moved for reconsideration by the Mississippi court. That court apparently decided to await the outcome of the appeal of the Texas litigation, and accordingly it withheld ruling on the motion until September 1984. Following this Court's disposition, it dismissed Ron Cox and Sales with prejudice and dismissed Count V of Sicilia's complaint with prejudice as to Smoked Foods and Marcus Cox. This appeal followed, based on a judgment certified pursuant to Fed.R.Civ.Proc. 54(b).

IV. RES JUDICATA AND THE CLAIMS AGAINST THE DEFENDANTS

Federal preclusion rules apply in this case, not state rules. "[W]e have repeatedly held that federal res judicata rules apply in a diversity case in determining the effect of a prior diversity case." Seven Elves, Inc. v. Eskenaze, 704 F.2d 241, 244 n. 2 (5th Cir.1983). See also Hardy v. Johns-Manville Sales Corp., 681 F.2d 334, 337 (5th Cir.1982). "These rules are the same for collateral estoppel as for other forms of res judicata." Seven Elves, supra at 244 n. 2.

The doctrine of res judicata, or claim preclusion, prevents the parties or their privies from relitigating claims that were or could have been raised in a prior action. Cromwell v. County of Sac, 40 Otto 351, 94 U.S. 351, 352, 24...