Opinion ID: 705070
Heading Depth: 3
Heading Rank: 1

Heading: The Alabama Judgment (Case # 8)

Text: 34 During October 1993, DAI's real-estate leasing company and its equipment leasing company filed suit against franchisee John McCrary in the Circuit Court of Talladega County, Alabama. In December 1993, McCrary filed a counterclaim against those DAI affiliates, and added DAI and its Alabama development agents as cross-claim defendants. On January 25, 1994, DAI and its affiliates filed a motion to dismiss the counterclaims and cross-claims or, in the alternative, to stay the Alabama case pending arbitration. DAI claims that it withdrew that motion after filing its petition to compel arbitration in the district court in Connecticut on March 8, 1994. On June 28, 1994, McCrary filed in the Alabama court a Motion to Determine Non-Arbitrability of Issues. 35 On July 7, 1994, the Alabama Circuit Court ruled that the arbitration clause was void and unenforceable for any of the following independent reasons: (1) lack of mutuality; (2) fraudulent inducement; (3) waiver by DAI of the right to invoke the arbitration clause; and (4) invalidity of the clause under Alabama law prohibiting all arbitration agreements, since the agreement lacked a sufficient interstate nexus to permit application of the FAA (which preempts state laws invalidating arbitration clauses affecting interstate commerce). The court also held that the issues raised in McCrary's counterclaim fell outside the scope of the arbitration clause. The Alabama court then expressly found no just reason for delay and accordingly directed that final judgment be entered in favor of McCrary. 36 DAI subsequently filed a motion for reconsideration, which the Alabama court denied on September 28, 1994. McCrary represents to this court that DAI subsequently appealed these orders to the Alabama Supreme Court. (The parties have been barred from proceeding with that appeal pursuant to the preliminary injunction entered by the district court on December 9, 1994.) 37 In an order entered September 29, 1994, denying McCrary's motion to dismiss, the district court declined to give preclusive effect to this Alabama judgment. The court reasoned that because a motion to reconsider the judgment was still pending in state court, there was not yet a final judgment on the merits. Thus, principles of res judicata and collateral estoppel would not apply. 38 On appeal, DAI concedes that the Alabama ruling was indeed final for the purposes of preclusion. Under Alabama law, an order entered upon less than all of the claims presented in an action is a final, appealable order if the judge makes an express determination that there is no just reason for delay.... Goza v. Everett, 365 So.2d 658, 659 (Ala.1978). Alabama courts, like federal courts, generally apply the same test of finality for purposes of preclusion as they do for appealability. Stone v. Williams, 970 F.2d 1043, 1055 (2d Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 2331, 124 L.Ed.2d 243 (1993); see also First Ala. Bank of Montgomery, N.A. v. Parsons Steel, Inc., 825 F.2d 1475, 1480 (11th Cir.1987) (interpreting Alabama law), cert. denied sub nom. McGregor v. First Ala. Bank of Montgomery, 484 U.S. 1060, 108 S.Ct. 1015, 98 L.Ed.2d 980 (1988). Because the Circuit Court of Talladega County expressly found that its decision was final and that there was no reason for delay, its July 7, 1994, order was immediately appealable and thus would be accorded preclusive effect under Alabama law as of that date. 39 DAI urges this court nevertheless to disregard the Alabama judgment, for three reasons. First, DAI argues that the Supreme Court's decision in Allied-Bruce Terminix Cos. v. Dobson, --- U.S. ----, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995), overturned the interstate commerce analysis that provided the Alabama court's fourth rationale for voiding the arbitration clause. The Supreme Court's decision, DAI contends, constitutes an intervening change in the applicable legal context, Staten Island Rapid Transit Operating Auth. v. ICC, 718 F.2d 533, 543 (2d Cir.1983), that requires a federal court not to accord preclusive effect to the Alabama decision. See RESTATEMENT (SECOND) OF JUDGMENTS Sec. 28(2) (1980). Even if Allied-Bruce did undermine one rationale supporting the Alabama court's judgment, however, the Supreme Court's decision did not affect the alternate grounds set forth by the court for voiding the arbitration clause. Because the legal context has not shifted at all in these other areas, we cannot reexamine the Alabama judgment. 40 Second, DAI contends that it was not afforded a full and fair opportunity to litigate the arbitration claims in the Alabama court. See Milltex Indus. Corp. v. Jacquard Lace Co., 922 F.2d 164, 168 (2d Cir.1991); Stone, 970 F.2d at 1056. DAI assigns error to three aspects of the procedure followed in the Alabama court, each of which we reject: (1) DAI complains that it was not afforded the right to file a brief in response to McCrary's Motion to Determine the Non-Arbitrability of the Issues. But as DAI conceded at oral argument before this court, nothing in the record indicates that it ever sought to file such a brief, much less that the Alabama court prevented it from filing one. Absent any evidence to the contrary, we accept the statement in the written order of the Alabama court that [b]oth sides have thoroughly briefed the issues and provided factual evidence in support of their respective positions. (2) DAI also claims that it was not afforded meaningful oral argument. Because DAI does not claim that oral argument was completely denied, we dismiss the argument out of hand. This court has held that [o]ral argument is not a necessary component of due process in all circumstances. Zaluski v. INS, 37 F.3d 72, 73 (2d Cir.1994); see also FCC v. WJR, The Goodwill Station, Inc., 337 U.S. 265, 276, 69 S.Ct. 1097, 1103, 93 L.Ed. 1353 (1949) (Certainly the Constitution does not require oral argument in all cases where only insubstantial or frivolous questions of law, or indeed even substantial ones, are raised.). Courts have broad discretion to determine how much, if any, oral argument is appropriate in a given case. We will not second-guess the Alabama court's allocation of its time. (3) Finally, DAI argues that the Alabama court drastically misapplied the law. This argument is nothing more than an invitation for this court to revisit the merits of the Alabama court's judgment--precisely what the full faith and credit statute tells us not to do. See Charles Koen & Assocs. v. City of Cairo, 909 F.2d 992, 1000 n. 8 (7th Cir.1990) (The full faith and credit statute does not permit federal courts to reassess the merits of state court judgments.). Lower federal courts are not superior to state courts. Lion Bonding & Sur. Co. v. Karatz, 262 U.S. 77, 90, 43 S.Ct. 480, 484, 67 L.Ed. 871 (1923); see also District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482, 103 S.Ct. 1303, 1314, 75 L.Ed.2d 206 (1983) ([A] United States District Court has no authority to review final judgments of a state court in judicial proceedings.). If DAI is dissatisfied with the judgment of the Alabama trial court, it should take an appeal. 41 Third, DAI argues that there was no motion properly before the Alabama court that would permit it to decide the arbitrability issue. That is, DAI claims that it had already withdrawn its own motion to compel arbitration under Sec. 3 of the FAA, and that McCrary's own Motion to Determine the Non-Arbitrability of the Issues was unauthorized, considering that McCrary had never sought a declaratory judgment in his complaint. According to DAI, the Alabama opinion is therefore purely advisory, and is not entitled to preclusive effect under state law. This argument fails for two reasons. First, the Alabama court clearly believed that DAI's motion to dismiss had been submitted for decision, since it denied that motion on the merits. Second, Stamps v. Jefferson County Board of Education, 642 So.2d 941, 944 (Ala.1994), which DAI cites, does not support the proposition that a declaratory judgment is merely advisory if such relief was not specifically requested in the complaint. All the Alabama Supreme Court stated in Stamps was that [a]ctions or opinions are denominated 'advisory,' ... where the judgment sought would not constitute specific relief to a litigant.... 642 So.2d at 944 (quoting EDWIN M. BORCHARD, DECLARATORY JUDGMENTS 34 (1934)) (emphasis deleted). In that case, a group of teachers had sued their employer and sought a judicial declaration that their work duties subjected them to prosecution by a state agency. The court held that such a declaratory judgment would be purely advisory because the prosecutorial agency had not been joined as a party, and thus would not be bound by the decision. Id. But DAI is a party in the Alabama action, and is bound by the state court judgment. Because the declaratory judgment finding the arbitration clause to be unenforceable provides specific relief to McCrary against DAI, as required by Stamps, it cannot be brushed aside as an advisory opinion. 42 For these reasons, we hold that the district court should have accorded full faith and credit to the Alabama judgment. Accordingly, we reverse the district court orders denying McCrary's motion to dismiss and compelling him to pursue arbitration. On remand, we direct the district court to dismiss DAI's petition to compel McCrary to arbitrate. Although McCrary did not appeal from the December 9, 1994 order entering the preliminary injunction, we nevertheless exercise our pendent appellate jurisdiction in the interests of judicial economy to vacate the injunction. See Golino v. City of New Haven, 950 F.2d 864, 868 (2d Cir.1991) ([W]here we have jurisdiction to consider some questions on appeal, we may exercise our discretion to take pendent jurisdiction over related questions.), cert. denied sub nom. Lillis v. Golino, --- U.S. ----, 112 S.Ct. 3032, 120 L.Ed.2d 902 (1992). 43