Wills v. Arizon Structures Worldwide, LLC

Citations: 124 F. Supp. 3d 760; 2015 U.S. Dist. LEXIS 110407; 2015 WL 5007904Docket: Civil Action No. 2:15-CV-193

Court: District Court, S.D. Texas; August 20, 2015; Federal District Court

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The Court, presided over by Judge Nelva Gonzales Ramos, has granted the Motion to Dismiss filed by Arizon Structures Worldwide, LLC (Arizon) and Johnson Marcraft, Inc. (JMI). Jurisdiction is established based on diversity of citizenship under 28 U.S.C. § 1332, with Petitioners David Wills (Texas) and James Salmon (Florida) versus Respondents Arizon (Illinois and Missouri) and JMI (Missouri), with the amount in controversy exceeding $75,000. The Court applied the standard of review for motions to dismiss under Federal Rule of Civil Procedure 12(b)(6), recognizing that res judicata may be adjudicated at this stage if clearly demonstrated on the record. 

Arizon and JMI claimed res judicata based on documents attached to the Petition, including contracts and Missouri state court orders, which the Court may consider. Wills and Salmon did not contest the treatment of the res judicata issue in the motion to dismiss. The facts reveal that on April 16, 2013, GBT, alongside Arizon and JMI, entered into a Non-Disclosure Agreement, Financing and Supply Agreement (NDAFS) for the exchange of trade secrets related to outdoor dome structures for GBT's shrimp farming operations. Wills signed the NDAFS as CEO of GBT, with an Arizon representative signing in their capacity as Chairman of both Arizon and JMI.

The NDAFS includes both an arbitration clause, which mandates binding arbitration under the American Arbitration Association (AAA) rules, and a forum-selection clause for litigation, specifying that any legal action must occur in a court in Saint Louis County, Missouri. Following this, on April 29, 2013, Arizon provided three Quotations for the sale of structures to David K. Wills, Jim Salmon, and GBT, acknowledging the NDAFS. The Quotations included a combined arbitration and forum-selection clause, stating disputes related to payment or contracts must be settled in St. Louis County Circuit Court or through AAA arbitration, with a waiver of appeal on arbitration awards.

A dispute arose when GBT failed to make a payment on June 1, 2014. Subsequently, Arizon filed a lawsuit against GBT, Wills, and Salmon in St. Louis, Missouri. Before being served, GBT initiated arbitration in Texas against Arizon. Arizon sought to stay the arbitration, claiming there was no enforceable agreement, while GBT moved to compel arbitration. Wills and Salmon did not participate in either motion. On February 10, 2015, the Missouri Circuit Court denied GBT's motion and granted Arizon a stay of arbitration. A later order confirmed that Wills and Salmon did not oppose the stay. 

After the Circuit Court's no-arbitration ruling was converted to a judgment, GBT appealed, and the Missouri Court of Appeals stayed litigation against GBT but not against Wills and Salmon. GBT's appeal is still pending. On April 29, 2015, Wills and Salmon filed a motion to dismiss the Circuit Court case, challenging jurisdiction and liability, and sought to compel arbitration, while also filing a separate action to stay the Missouri proceedings and compel arbitration.

On June 2, 2015, Arizon filed a Motion to Dismiss a federal action. Subsequently, on June 7, 2015, Wills and Salmon requested a temporary restraining order and preliminary injunction from this Court to halt litigation in the Missouri Circuit Court pending an order to compel arbitration. On July 1, 2015, the Missouri Circuit Court denied Wills and Salmon’s motion to dismiss, stating that they had a weaker claim to arbitration than GBT, as they were not parties to the NDAFS. There is no record of Wills and Salmon appealing this decision, but they complied by filing answers to the claims against them, thus allowing the Missouri litigation to proceed.

In its Motion to Dismiss, Arizon contended that Wills and Salmon are bound by the Missouri Circuit Court’s April 8, 2015, no-arbitration judgment through res judicata or collateral estoppel, claiming privity with GBT, while not relying on the subsequent July 1, 2015, order. For this Court to proceed, it would need to determine if the April 8 judgment binds Wills and Salmon or lacks preclusive effect. The Court concluded that the Missouri no-arbitration judgment does bind Wills and Salmon and is entitled to preclusive effect, leading to the dismissal of the action without addressing other arguments regarding abstention or forum non conveniens.

Wills and Salmon were joined as defendants in the Missouri action by January 7, 2015, when Arizon included them in a petition seeking a declaration against arbitration. They appeared in the Missouri case alongside GBT on January 21, 2015, with shared counsel. Before their appearances, Arizon had filed a motion to stay arbitration, served on attorneys including GBT’s General Counsel. This motion aimed to expedite the declaratory judgment and prevent arbitration for all defendants. While GBT opposed the motion and sought to compel arbitration, Wills and Salmon did not contest it or seek arbitration themselves. Instead, on January 23, 2015, they requested an extension to respond to the complaint, deferring to GBT on the arbitration issue, which was granted, and the Missouri Circuit Court subsequently stayed arbitration on February 10, 2015.

The Court issued a no-arbitration judgment that GBT appealed. The Missouri Circuit Court denied GBT's request to stay litigation during the appeal, noting that Wills and Salmon had not opposed Arizon's motion to stay arbitration nor filed their own motion to compel arbitration. The Court of Appeals granted a stay only for claims against GBT, allowing litigation to proceed against Wills and Salmon. On April 29, 2015, Wills and Salmon moved to dismiss based on their claim for arbitration under the NDAFS. In opposition, Arizon, JMI, Scharf, and Ligas contended that Wills and Salmon were bound by the prior no-arbitration ruling due to their privity with GBT. The Missouri Circuit Court denied the motion, stating that Wills and Salmon, as non-signatories to the NDAFS, could not have greater arbitration rights than those of the signatories.

Arizon argues in this Court that Wills and Salmon are bound by the no-arbitration judgment, rendering the action moot. Wills and Salmon did not oppose Arizon's motion to stay arbitration in Missouri to avoid waiving jurisdiction. The Court's decision hinges on the privity between Wills and Salmon and GBT. Missouri law on claim preclusion requires identity in the subject matter, cause of action, parties, and their quality. This case involves the same arbitration issue and cause of action as in Missouri, with Wills and Salmon being in privity with GBT. They have been sued for contractual obligations under the NDAFS like GBT and seek to enforce arbitration based on the same terms. The only distinction is that GBT signed the NDAFS, making it a proxy for Wills and Salmon's arbitration interests, establishing the necessary identity of interest in the subject matter.

Wills and Salmon assert an independent right to pursue arbitration due to being sued individually, but they have not demonstrated how their interests in arbitration differ from those of the corporation they represented, GBT. They acknowledge their role as corporate agents and concede privity with GBT, as they acted in a corporate capacity during the relevant transactions. Their claims for arbitration are based on the same contractual clause and involve the same transactions as GBT's claims, indicating aligned interests. Their shared legal representation further underscores the lack of divergent interests. The court finds that the relationship between GBT and the individuals supports a conclusion of privity. Wills and Salmon's reliance on prior cases, such as Gamble v. Browning and De Llano v. Berglund, is misplaced as those cases involved distinct interests not present in this case. Consequently, the court determines that GBT and Wills and Salmon share a common interest in compelling arbitration. Additionally, Wills and Salmon acknowledge that the court must give preclusive effect to state court judgments consistent with the state law.

A prior state court judgment may have res judicata effect in related federal proceedings concerning arbitration. The key issue is whether the Missouri Circuit Court's ruling against arbitration qualifies as a final judgment for res judicata purposes, even though it is currently under appeal. The parties concur that Missouri law governs this determination, consistent with the Full Faith and Credit Act, which requires that a state court decision receives the effect prescribed by the originating state’s law. 

Wills and Salmon argue that the denial of arbitration, while appealable, is not a "final" judgment based on Missouri Supreme Court opinions, which distinguish between appealable orders and traditional final judgments. However, Arizon contends that such a judgment should be treated as automatically preclusive, citing Missouri case law that states a judgment on the merits is considered final even if under appeal. 

Arizon references an unpublished opinion to support that a trial court’s actions regarding a successive arbitration request are void if the same issue is already pending appeal. Additionally, federal cases from other jurisdictions suggest that arbitration decisions are treated as final judgments on the merits for preclusion purposes. The Third and Eleventh Circuits have held that the finality of arbitration decisions can be equated to that of a judgment on the merits, while Wills and Salmon cite a contrary decision from the Seventh Circuit. Overall, the discussion centers on the classification of the no-arbitration judgment concerning its preclusive effect in concurrent federal proceedings.

In a class action case, the United States District Court for the Northern District of Illinois compelled arbitration despite a state court ruling that deemed the arbitration agreement void. The state court's decision was under appeal based on a rule allowing partial final judgments to be appealed. The Seventh Circuit upheld the federal court's ruling after the state appellate court concluded that the trial court's order was not final and appealable due to specific language in the order. Consequently, the court found that Wills and Salmon are in privity with GBT regarding the request to compel arbitration, and the Missouri Circuit Court's April 8, 2015 judgment is given preclusive effect under res judicata as a final ruling on the issue of arbitrability, which is appealable to the Missouri Court of Appeals. As a result, the state court judgment bars the current action, leading to the granting of Arizon's motion to dismiss, while Arizon's request for attorney's fees and costs is denied. The circuit court proceedings are not stayed for individual defendants Ron Scharf and Jan Ligas, who are intervenor plaintiffs, and the court references only the individual defendants Wills and Salmon, as clarified in Nelson v. Missouri Division of Family Services.