Opinion ID: 2977151
Heading Depth: 3
Heading Rank: 2

Heading: The Federal Court Proceedings

Text: On April 5, 2007, Hanger filed a complaint in the United States District Court for the Eastern District of Tennessee requesting damages stemming from breach of contract. Specifically, the complaint states: 1 In its Memorandum Opinion on damages, the chancery court reconsidered its earlier opinion and determined that Choice was not guilty of tortious interference with business relationships. -5- No. 07-6329 Hanger Prosthetics & Orthotics East, Inc. v. Henson, et al. 1. This is an action for damages arising from Defendants’ procurement of breach of contract under Tenn. Code Ann. § 47-50-109. Henson and Altshuler are the principals and owners of [Choice], which provide[s] orthotic and prosthetic products and services in competition with Hanger in the State of Tennessee. On September 1, 2004, Defendants knowingly and tortiously induced [Kitchens], Hanger’s key orthotist in the Knoxville area, to breach his non-compete agreement with Hanger by accepting employment with and actively working for Choice in the Knoxville area. As a Choice employee, Kitchens, on behalf of and with the assistance of Choice, wrongfully solicited and obtained numerous orthotics referrals from physicians whom Kitchens knew solely because of his employment with Hanger. 2. On November 15, 2004, Hanger filed [suit in chancery court]. In the State Court Action, Hanger sought injunctive relief and damages against Kitchens and Choice for several claims, including breach of contract and inducement or procurement of breach of contract. 3. After conducting a trial on the issue of liability on August 30, 2005, the Court found that Kitchens breached his non-compete agreement with Hanger and that Choice, through the actions of its principals Henson and Altshuler, procured such breach in violation of Tenn. Code Ann. § 47-50-109. (JA 4-5). The complaint continues with a description of the chancery court’s conclusions regarding damages, stating that the chancery court found Choice liable for “$720,546, representing treble damages, and costs. The treble damages award against Choice was based on the actions of Henson and Altshuler in procuring Kitchens’ breach of contract.” (JA 5.) In the fact section of the Complaint, Hanger repeats the allegations made in, and adopted by, the state court, and continues by describing Defendants’ actions as owners of Choice—the Defendant in the state court proceeding: 18. As found in the State Court Action, Choice, through its owners and principals Henson and Altshuler, continued to use Kitchens as an orthotist in the Knoxville area in violation of Kitchens’ non-compete agreement with Hanger. By their actions in violation of Hanger’s rights, Kitchens and Choice obtained numerous orthotics and referrals for Choice from physicians in the Knoxville area, physicians Kitchens had -6- No. 07-6329 Hanger Prosthetics & Orthotics East, Inc. v. Henson, et al. formally services on behalf of Hanger. Kitchens also performed virtually all of the orthotics work for Choice related to these referrals. 19. Choice and Kitchens continued their unlawful competition with Hanger until the Chancery Court issued a temporary injunction on February 23, 2005, prohibiting further violation of Kitchens’ non-compete agreement pending the resolution of the matter on the merits. (JA 9-10.) The fact section next describes the proceedings in the state court, and attempts to include the chancery court’s conclusions: 23. Hanger expressly and affirmatively pleads the issues, facts, and/or claims raised [above] are already conclusively established by the findings of fact and conclusions of law, actually litigated and necessarily decided, by the Chancery Court in its rulings . . . . (JA 11.) The statement of facts concludes: 24. Henson and Altshuler, through their individual actions, procured the breach of Kitchens’ Employment Agreement with Hanger and are liable in their individual capacity as joint tortfeasors for procurement of breach of contract under Tenn. Code Ann. § 47-50-109. (JA 11.) Finally, Hanger’s requested relief is the amount of damages determined by the chancery court.
On May 22, 2007, Defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief could be granted under Federal Rule of Civil Procedure 12(b)(6). The motion states: Defendants, Henson and Altshuler, as corporate officers of [Choice], are immune from any action brought herein based on actions taken by them in their corporate capacity with [Choice]. Further, Plaintiff is judicially estopped to take an inconsistent position in this litigation as to liability under Tenn. Code Ann. § 47-50109 from that which was taken by the Plaintiff in the companion state court action. -7- No. 07-6329 Hanger Prosthetics & Orthotics East, Inc. v. Henson, et al. (JA 90.) On June 11, 2007, Hanger filed its response to Defendants’ motion to dismiss, arguing that Defendants were not entitled to immunity and that judicial estoppel should not apply. Hanger also argued that the preclusive doctrine of collateral estoppel did not bar its action against Defendants.
On October 16, 2007, the district court granted Defendants’ motion to dismiss. In so doing, the district court restated the facts from Hanger’s complaint, and concluded that Defendants’ estoppel argument was dispositive. The district court did not address Defendants’ immunity argument. In its analysis, the district court interpreted Defendants’ estoppel argument as one of claim preclusion: Defendants argue that plaintiff is “judicially estopped to assert an individual claim against the corporate officers of Choice Medical. The allegations and relief sought in the present matter conflict with the allegations and statements of positions taken by Plaintiff in the State Court Action.” Mem. of Law in Supp. of Defs.’ Mot. to Dismiss at 8 [Doc. 9]. The court interprets this argument essentially as one of claim preclusion: Because the plaintiff had a full and fair opportunity to litigate its claim in the prior state court action, plaintiff is now precluded from raising this claim in federal court. (JA 120.) The district court determined that Tennessee law would apply, and then provided: Tennessee recognizes two preclusion doctrines, res judicata and collateral estoppel. As noted by the Tennessee Supreme Court, The doctrine of res judicata, [or claim preclusion], bars a second suit between the same parties or their privies on the same cause of action with respect to all issues which were or could have been litigated in the former suit. Collateral estoppel operates to bar a second suit between the same parties and their privies on a different cause of -8- No. 07-6329 Hanger Prosthetics & Orthotics East, Inc. v. Henson, et al. action . . . as to issues which were actually litigated and determined in the former suit. Massengill v. Scott, 738 S.W.2d 629, 631 (Tenn. 1987). As plaintiff raises a claim which could and should have been raised in the state court proceeding, the doctrine of res judicata, or claim preclusion, applies to this case. In Tennessee, to successfully assert a res judicata defense, the party “must demonstrate (1) that a court of competent jurisdiction rendered the prior judgment, (2) that the prior judgment was final and on the merits, (3) that both proceedings involved the same parties or their privies, and (4) that both proceedings involved the same cause of action.” Gerber v. Holcomb, 219 S.W.3d. 914, 917 (Tenn. Ct. App. 2006) (quoting Young v. Barrow, 130 S.W.3d 59, 64 (Tenn. Ct. App. 2003)). This case satisfies all four requirements of the Tennessee test for res judicata, or claim preclusion. First, a judgment was rendered by a court of competent jurisdiction, the Chancery Court of Knox County, Tennessee. Second, that judgment was final and issued on the merits. See Compl. ¶¶ 20-21. Third, the proceeding involved the same parties to this litigation. Though defendants are now sued in their individual capacities, they were privities of the defendant of the first suit as principals and sole owners of Choice Medical. Finally, the proceedings involve the same cause of action: by plaintiff’s own admission, this suit arises from the identical set of facts and theory of liability for which plaintiff recovered in the Chancery Court. See Resp. to Defs.’ Mot. to Dismiss at 11-13. In short, it is clear that the doctrine of claim preclusion bars plaintiff’s claim for personal liability. Had the plaintiff wished to pierce the corporate veil and hold defendants Henson and Altshuler personally liable, plaintiff should have raised those claims in the prior state court proceeding. The Full Faith and Credit Act and principles of res judicata now bar this court from taking action. Because this issue is dispositive, the court need not reach an analysis on the merits of defendants’ immunity from personal liability. (JA 121-22, footnote omitted.) The district court concluded that the “principles of res judicata preclude plaintiff’s claim for defendants’ personal liability,” and granted Defendants’ motion to dismiss. This appeal followed. -9- No. 07-6329 Hanger Prosthetics & Orthotics East, Inc. v. Henson, et al.