Opinion ID: 2998344
Heading Depth: 2
Heading Rank: 2

Heading: Res Judicata Effect of the ICC Arbitration

Text: In Pennsylvania application of the doctrine of res judicata generally requires that the two actions possess the following common elements: (1) identity of the thing sued upon, (2) identity of the cause of action, (3) identity of the parties, and (4) identity of the capacity of the parties. Dempsey v. Cessna Aircraft Co., 653 A.2d 679, 681 (Pa. Super. 1995), appeal denied, 663 A.2d 684 (1995). Anchor takes issue with the district court’s conclusions concerning the second and third elements, arguing that the causes of action and the parties involved in the two actions are sufficiently distinct that the application of res judicata is unwarranted.
Anchor argues that the arbitration was limited to a single issue of contract interpretation—whether the September 8 letter constituted an amendment to the purchase agreement—and that its claims in this case, by contrast, are predicated not on the September 8 letter but on “oral representations” made by Ulrich Buschmeier directly to Anchor (in the person of Deneau) during preletter telephone 5 Stated briefly, the district court’s conclusion that Pennsylvania law applies was premised on the fact that the September 8 letter was an agreement between the Buschmeiers and G & G Investments calling for performance (return of the initial installment payment) to be made in G & G’s home state of Pennsylvania. Similarly, with respect to Anchor’s tort claims, the court held that any tort had been committed in Pennsylvania because this was the “site” of the Buschmeiers’ failure to return the money to G & G. Due to Anchor’s voluntary abandonment of the issue, we need not review the district court’s choice-of-law analysis. No. 03-1515 9 conversations on September 7 and 8, 1998. Thus (the argument goes), Anchor’s claims in this suit are grounded on different claims for relief—fraud, promissory estoppel, conversion, and unjust enrichment—and a different evidentiary foundation, namely, oral representations made by Mr. Buschmeier. Anchor’s argument draws too fine a distinction between the claims res judicata insulates from relitigation and those that are excluded from the doctrine’s scope. In Pennsylvania, as elsewhere, the causes of action litigated in the first action need not be identical to those in a subsequent action for res judicata to be successfully invoked. Rather, identity of the causes of action is evaluated by reference to the similarity of the acts complained of, the demand for recovery, and the identity of “witnesses, documents and facts alleged.” In re Jones & Laughlin Steel Corp., 477 A.2d 527, 531 (Pa. Super. 1984); Dempsey, 653 A.2d at 681. In making this determination, Pennsylvania courts “cannot and will not elevate form over substance” and have held that “the form in which two actions are commenced does not determine whether the causes of action are identical.” Chada v. Chada, 756 A.2d 39, 43 (Pa. Super. 2000). Instead, “if the acts or transactions giving rise to causes of action are identical, there may be sufficient identity between two actions for the . . . judgment in the first action to be res judicata in the second.” Dempsey, 653 A.2d at 681. Thus, rather than focusing on the specific legal theory invoked in a second suit, Pennsylvania courts are most interested in the “essential similarity of the underlying events giving rise to various legal claims.” Jones & Laughlin Steel, 477 A.2d at 531. Applying these principles here, we agree with the district court that there is sufficient identity of the causes of action in the arbitration and the present action for res judicata to apply. The ultimate relief sought in the two actions— return of the $17 million installment payment—is identical, 10 No. 03-1515 as is the alleged wrongful conduct of the Buschmeiers in refusing to refund the payment. The underlying events, the surrounding facts, the witnesses, and the documents giving rise to the claims in the respective actions are the same. Apart from the presence of differing legal theories of recovery, Anchor identifies only a single distinction between the arbitration and this case: Anchor disavows any intent to rely on the language of the September 8 letter but instead wants to litigate alleged oral misrepresentations made by Ulrich Buschmeier concerning the conditions under which the $17 million would be returned and the necessity of adhering to the deadline for payment of the first installment. While the transcript of the arbitration proceeding has not been made a part of the record, it is clear from our reading of the arbitration panel’s decision that Deneau was permitted to testify regarding his conversations with Buschmeier surrounding the drafting of the September 8 letter. Indeed, the decision quotes from Deneau’s testimony concerning his discussions with Buschmeier during this time frame. The panel’s decision makes it clear that this testimony was elicited in order to determine what Buschmeier intended by executing the September 8 letter. The arbitration award also indicates that Buschmeier testified at the hearing and was questioned concerning the content of his conversations with Deneau.6 Accordingly, the acts and transactions Anchor seeks to litigate here are the same as those that were explored in the arbitration. 6 Paragraph 109 of the arbitration decision states, “According to Mr. Buschmeier, during discussions which he had with Mr. Deneau, the latter downplayed the significance of the letter and maintained that it was only to be regarded as a formality of a declaratory nature. Mr. Buschmeier remembers Mr. Deneau saying, ‘I need a paper here.’ ” No. 03-1515 11 It is true that the arbitration decision does not specifically refer to what Deneau testified Buschmeier said to him, but the precise scope of Deneau’s testimony is not dispositive. Application of res judicata is not prohibited merely because Deneau might have “held back” testimony at the arbitration concerning Buschmeier’s alleged misrepresentations; nor would it be prohibited if Deneau was not asked all questions pertinent to the present claims during the course of the arbitration. Res judicata applies to claims that “could and should have been more fully developed” within the context of the first action, as well as “subsequent claims that could have been litigated in the prior action.” Chada, 756 A.2d at 43 (emphasis added). Thus, because the conversations between Buschmeier and Deneau were at issue in the arbitration and were explored during the arbitration hearing testimony, Anchor’s only proposed distinction between the two actions amounts to no distinction at all. The underlying events, witnesses, and evidence in the two actions are sufficiently similar so as to satisfy the res judicata element of identity of the causes of action.
The third element of res judicata under Pennsylvania law is identity of the parties in the two actions. Dempsey, 653 A.2d at 681. Literal identity is once again not required; “the doctrine of res judicata applies to and is binding, not only on actual parties to the litigations, but also to those who are in privity with them.” Day v. Volkswagenwerk Aktiengesellschaft, 464 A.2d 1313, 1317 (Pa. Super. 1983). In Pennsylvania, “there is no prevailing definition of ‘privity’ which can be applied automatically to all cases,” id., and “the privity enquiry should be flexible enough to acknowledge the realities of parties’ relationships.” Myers v. Kim, 55 Pa. D. & C.4th 93, 101 (Pa. Com. Pl. 2001). 12 No. 03-1515 In this context, the term privity is “merely a word used to say that the relationship between one who is a party on the record and another is close enough to include the other within the res judicata.” Myers, 55 Pa. D. & C.4th at 100. Privity connotes “those so connected in law with a party to the judgment as to have such an identity of interest that the party to the judgment represented the same legal right.” Day, 464 A.2d at 1317-18; see also Ammon v. McClosky, 655 A.2d 549, 554 (Pa. Super. 1995) (privity will exist when there is “such an identification of interest of one person with another as to represent the same legal right”); Myers, 55 Pa. D. & C.4th at 101 (“a nonparty may be bound if his interests are adequately represented by someone with the same interest who is a party”) (quoting Martin v. Wilkes, 490 U.S. 755, 761 n.2 (1989)). Anchor advances essentially the same argument regarding the identity of parties as it did on the identity of the causes of action—that its claims here are based upon oral misrepresentations made exclusively to its president, Deneau, while G & G proceeded only on a breach of contract in the arbitration and thus could not have pursued Anchor’s additional claims in the arbitration. This argument is unpersuasive for several reasons. First, we have already concluded that there was sufficient identity of the causes of action possessed by Anchor and G & G to support a finding of res judicata. Second, Anchor’s argument assumes that the existence of different legal theories of recovery available to G & G is tantamount to the two entities possessing disparate and distinct legal interests in the property at issue. We disagree with this premise. Despite the differing legal theories asserted by G & G and Anchor, the remedy and the interest in property pursued in both actions is identical—the return of the $17 million initial installment payment. There is but one legal interest in the return of property at stake in both actions, an interest shared by G & G and Anchor; the fact that the parent company sought to No. 03-1515 13 vindicate its right via a contract action while the subsidiary couches its claims in the language of tort does not somehow divide that shared interest. Moreover, the wall of separation between the legal entities known as G & G and Anchor was far from impenetrable.7 The parties do not elaborate on the relationship other than to note that Anchor is a subsidiary of G & G, but we cannot ignore the fact that Deneau was one of the principal negotiators for G & G in the attempted purchase of Heye.8 Furthermore, testimony at the arbitration hearing established that Deneau and another Anchor executive brought Heye to the attention of G & G as a potential target for acquisition. Deneau negotiated the September 8 letter and was a principal fact witness for G & G at the arbitration hearing. Under these circumstances, it would strain credulity to find that the interests of Anchor and G & G were so distinct that they are not aligned for purposes of res judicata. We agree with the district court that the identity of the parties is sufficient to warrant application of res judicata here. The judgment of the district court is AFFIRMED. 7 The arbitration decision describes G & G as a “simple shell company with very little in terms of assets and liquidity.” 8 The record only identifies Deneau as president and CEO of Anchor and is silent as to whether he also held a position as an officer or employee of G & G. 14 No. 03-1515 A true Copy: Teste: ________________________________ Clerk of the United States Court of Appeals for the Seventh Circuit USCA-02-C-0072—10-18-05