Haber v. Biomet, Inc.

• Decision Date: 20 August 2009
• Docket Number: No. 08-1670.,08-1670.
• Citation: 578 F.3d 553
• Parties: Paul HABER, Plaintiff-Appellant, v. BIOMET, INCORPORATED, and Biomet Orthopedics, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

578 F.3d 553

Paul HABER, Plaintiff-Appellant, v. BIOMET, INCORPORATED, and Biomet Orthopedics, Incorporated, Defendants-Appellees.

No. 08-1670.

United States Court of Appeals, Seventh Circuit.

Argued February 17, 2009.

Decided August 20, 2009.

Nelson D. Alexander, Attorney, Albert J. Dahm (argued), Darren A. Craig, Attorney, Frost Brown Todd, Indianapolis, IN, for Plaintiff-Appellant.

Michael P. Roche (argued), Attorney, Winston & Strawn LLP, Chicago, IL, for Defendant-Appellee.

Before POSNER, KANNE, and WOOD, Circuit Judges.

WOOD, Circuit Judge.

Biomet produces prosthetic joints, such as artificial hips and knees, and there is great demand for its products in Florida. To meet this demand, Biomet contracted with Paul Haber, who served as a distributor for Biomet in various Florida counties. The parties structured their relation through agreements made in 1995 and 1999; those agreements contained different methods for dispute resolution. The 1995 version required that disputes be litigated in Indiana, while the 1999 text required arbitration in Chicago, Illinois. The parties modified the 1995 Agreement several times between 1995 and 2005. Biomet apparently believed that the 1995 Agreement's litigation clause governed the entire relation between the parties. As became clear later, Haber thought that the arbitration clause in the 1999 Agreement controlled.

In 2007, Biomet and Haber's relation turned sour. Biomet believed that Haber had violated their agreements by working for a competitor, and so it filed suit against Haber in Hamilton Superior Court in Indiana. In response, Haber filed a complaint to compel arbitration in the Southern District of Indiana, which dismissed the case because of improper venue. Haber then filed a motion to compel arbitration in Hamilton Superior Court, which granted the motion with respect to Biomet's claims arising under the 1999 Agreement, but denied it with respect to the claims arising under the 1995 Agreement. (In so ruling, the state court necessarily decided that the two agreements had to be treated separately.) Haber chose to appeal only the decision of the federal district court, leaving the Indiana state court's decision undisturbed.

We conclude that res judicata bars our consideration of the particular arbitrability issue that Haber asks us to consider in his appeal. At Haber's urging, the Hamilton Superior Court reached that issue first and resolved it. In addition, the district court's rationale for dismissing Haber's complaint on the basis of venue was sound. Therefore, we affirm.

I

As we have already noted, this case involves a garden-variety relation between a manufacturer and a distributor. Haber distributed Biomet's medical devices in several counties in Florida. The parties launched this arrangement through a letter dated May 26, 1995 ("1995 Agreement"). That document contained the following provision on the topic of dispute resolution:

It is further agreed that any and all actions concerning any dispute arising under our relationship shall be filed and maintained only in a state or federal court of competent jurisdiction sitting in the State of Indiana, and both of us consent to such jurisdiction.

The parties later amended this agreement eleven times (in 1995, 1996 (three times), 1997, 1998, 1999, 2001 (three times), and 2005), mostly to add or remove territories in which Haber could sell Biomet products. These modifications always referred to the 1995 Agreement and stated clearly that they were amendments.

The parties executed a separate agreement in a letter dated October 8, 1999 ("1999 Agreement") that addressed several points: it added Sarasota County to Haber's portfolio; it enlarged Biomet's rights with regard to various contractual provisions; and it included an arbitration clause, which stated plainly that the "place of arbitration shall be Chicago, Illinois."

On September 12, 2007, Biomet, believing that Haber had violated their agreements by working for a competitor, filed suit in Hamilton Superior Court, a state court in Indiana; for federal court purposes, Hamilton County lies within the Indianapolis Division of the Southern District of Indiana. See 28 U.S.C. § 94(b)(1). In response, Haber filed a complaint in the Southern District of Indiana to compel arbitration and to stay the state court proceedings. In its court documents, Biomet advanced the theory that the choice-of-forum clause contained in the 1995 Agreement governed the entire Biomet Haber relationship. Haber expressed the contrary view that the 1999 Agreement's arbitration clause controlled everything. The district court ruled that it lacked authority to order arbitration because it was not located in the venue specified by the parties: Chicago, Illinois. In dicta, it also stated that the 1995 and 1999 Agreements were separate and that any claims arising under the 1995 Agreement had to be litigated in Indiana. It thus dismissed the complaint.

Instead of refiling in Chicago, Haber appealed the district court's judgment to this court and at the same time filed a motion in Hamilton Superior Court to compel arbitration and stay proceedings. On June 4, 2008, the Indiana state court granted in part and denied in part Haber's motion. It ruled that the 1995 and 1999 Agreements were separate; it required Biomet to identify which claims arose under which agreement; and it compelled arbitration on the claims (if any) that fell under the 1999 Agreement. Haber did not appeal that decision.

II

Biomet raises the threshold question whether this court's consideration of the arbitrability issue is prohibited by the doctrine of res judicata, in light of the Hamilton Superior Court's ruling on arbitrability. State court judgments are entitled to recognition by federal courts and are entitled to preclusive effect. 28 U.S.C. § 1738; Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Merrill Lynch, Pierce, Fenner & Smith v. Salvano, 999 F.2d 211, 216 (7th Cir.1993). Indiana, like most places, recognizes two different types of preclusive effects: claim preclusion and issue preclusion. See Lanny B. v. Marion County Dep't of Child Servs. (In re L.B.), 889 N.E.2d 326, 333 (Ind.Ct.App.2008). While neither party is particularly clear about what type of preclusion is at stake here, issue preclusion seems the likeliest candidate. The Hamilton Superior Court case has not concluded. What the court did, however, was to decide that claims under the 1995 Agreement were not arbitrable. If that decision is entitled to preclusive effect, then the federal court would need to follow suit.

Because issue preclusion cannot be applied unless the rendering court's decision is final, we must decide what exactly is necessary for finality in this context. On this point, the Restatement (Second) of Judgments, to which the Indiana courts turn, see, e.g., Miller Brewing Co. v. Indiana Dept. of State Revenue, 903 N.E.2d 64, 68 (Ind.2009), is instructive:

The rules of res judicata are applicable only when a final judgment is rendered. However, for purposes of issue preclusion (as distinguished from merger and bar), "final judgment" includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect.

. . .

g. Criteria for determining finality in the application of issue preclusion .... [T]he court should determine that the decision to be carried over was adequately deliberated and firm, even if not final in the sense of forming a basis for a judgment already entered. Thus preclusion should be refused if the decision was avowedly tentative. On the other hand, that the parties were fully heard, that the court supported its decision with a reasoned opinion, that the decision was subject to appeal or was in fact reviewed on appeal, are factors supporting the conclusion that the decision is final for the purpose of preclusion. The test of finality, however, is whether the conclusion in question is procedurally definite and not whether the court might have had doubts in reaching the decision.

Restatement (Second) of Judgments § 13 (1982). See also Johnson v. Anderson, 590 N.E.2d 1146, 1149 (Ind.Ct.App.1992) (quoting Restatement (Second) of Judgments § 18, on finality, with approval). The analysis of finality for purposes of issue preclusion is an holistic one, focused on the nature of the judgment itself and specifically whether it is sufficiently firm and non-tentative.

Once finality has been established, Indiana prohibits relitigation of an issue when four elements are present:

(1) the former judgment must have been rendered by a court of competent jurisdiction; (2) the matter at issue was, or might have been, determined in the former suit; (3) the controversy adjudicated in the former suit was between parties to the present suit; and (4) the judgment in the former suit was rendered on the merits.

Leal v. Krajewski, 803 F.2d 332, 334-35 (7th Cir.1986) (citing Indiana authorities).

Biomet argues for finality based on the fact that an order denying a motion to compel arbitration is immediately appealable as of right in Indiana. See IND. CODE § 34-57-2-19. In its latest decision on issue preclusion, Miller, the Supreme Court of Indiana discussed how appealability is an important factor for establishing whether an issue is sufficiently final for issue preclusion purposes:

In general, issue preclusion bars subsequent litigation of the same fact or issue that was necessarily adjudicated in a former suit. Issue preclusion applies only to matters actually litigated and decided, not all matters that could have been decided. The matters decided must have been appealable in the original suit. The right to appeal is sufficient even if it is limited by the discretionary powers of the appellate court, as is the case in review of Tax Court decisions.

903 N.E.2d at 68 (citations omitted). In Biomet's opinion,...