Court Opinion

ID: 2998344
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:43:06.061222+00
Date Added: 2024-06-11T08:52:53.827433
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

No. 03-1515
ANCHOR GLASS CONTAINER CORPORATION,
                                             Plaintiff-Appellant,
                                v.

ULRICH BUSCHMEIER and PETRA BUSCHMEIER,
                                          Defendants-Appellees.
                         ____________
            Appeal from the United States District Court
     for the Northern District of Indiana, Fort Wayne Division.
              No. 01 C 430—William C. Lee, Judge.
                         ____________
  ARGUED FEBRUARY 7, 2005—DECIDED OCTOBER 18, 2005
                    ____________

 Before ROVNER, WILLIAMS, and SYKES, Circuit Judges.
  SYKES, Circuit Judge. Anchor Glass Container Corpora-
tion (“Anchor”) loaned its parent company, G&G Invest-
ments, Inc. (“G & G”), approximately $17 million needed by
G & G to make an initial installment payment toward the
purchase of a German glass company known as
Kommanditgessellschaft in Firma Hermann Heye (“Heye”).
When the deal went sour after the initial $17 million had
been paid, G & G proceeded to arbitration on the question
of whether Heye’s principal shareholder, Petra Buschmeier,
would be required to return the initial payment. The
arbitration panel eventually ruled in favor of Mrs.
Buschmeier. In the present case, Anchor has sued Petra
Buschmeier and her husband, Ulrich, seeking the return of
2                                              No. 03-1515

the same $17 million that was at issue in the arbitra-
tion proceeding. The district court dismissed the action,
holding that there was sufficient identity in the causes
of action and the parties that the arbitration award was res
judicata as to Anchor’s claims. Anchor appeals and we
affirm.

                     I. Background
  In the spring of 1998, G & G, backed by a consortium of
Canadian coinvestors,1 entered into negotiations with Petra
and Ulrich Buschmeier for the acquisition of Heye, a
German limited partnership. One of the principal negotia-
tors acting on behalf of G & G was Richard Deneau, presi-
dent and CEO of Anchor, a subsidiary of G & G. Petra
Buschmeier owned a 60.1% interest in Heye, and Ulrich
Buschmeier owned another 1.02%. In the course of the
negotiations, the Buschmeiers represented to G & G that
any sale of Heye would require the Buschmeiers to first
purchase the interests of minority shareholders as well as
the usufructuary rights of Petra Buschmeier’s mother. The
Buschmeiers indicated they had agreements in place that
would allow them to force the sale of those interests but
that time was of the essence because of an impending
deadline within which a sale of minority interests could
be compelled.
  On September 5, 1998, G & G executed an agreement to
purchase Heye. The agreement required payment in three
installments, the first of which—a payment of approxi-
mately $17 million—was due within three days. This sum
was to be paid directly to Petra Buschmeier for use in
purchasing her mother’s usufructuary rights. The second
payment was due a week later and the final payment a

1
  G & G’s coinvestors were two Canadian pension funds and an
investment capital group.
No. 03-1515                                                 3

month after that. The purchase agreement also con-
tained an arbitration clause which stipulated that “[a]ll
disputes arising in connection with this Agreement shall be
finally settled under the Rules of Arbitration of the Interna-
tional Chamber of Commerce by three arbitrators appointed
in accordance with said rules.”
  Apparently G & G’s execution of the purchase agreement
and the tight payment schedule to which it had committed
caught its Canadian coinvestors completely off- guard. The
day before the first payment was due, certain coinvestors
reported that their boards would not authorize the release
of the money needed to fund the initial installment until
additional due diligence was performed. G & G asked the
Buschmeiers for an extension of the initial payment due
date in order to placate the demands of the coinvestors and
secure the financial records they required. The Buschmeiers
refused to extend the deadline.
  In an effort to meet the deadline and save the deal, G & G
turned to its subsidiary, Anchor, for a $17 million bridge
loan. Anchor agreed to loan G & G the funds for the initial
installment, provided that Deneau receive assurances that
the initial payment would be returned if G & G and its
coinvestors were unable to complete the acquisition of Heye
under the terms of the September 5 agreement. To this end,
Ulrich Buschmeier and Deneau had telephone conversa-
tions on September 7 and 8 in which Mr. Buschmeier
allegedly promised that the initial payment would be repaid
in the event the transaction was not completed. Buschmeier
also apparently reiterated that the deadline for making the
initial payment could not be extended due to the impending
expiration of Heye’s agreements with its minority share-
holders. Deneau and his German counsel then drafted a
letter for Ulrich Buschmeier’s signature dated September 8,
1998, addressed from Buschmeier to G & G’s CEO, in which
Buschmeier confirmed that “this first installment . . . will
be repaid to G & G Investments, Inc., if for any reason,
4                                                No. 03-1515

or without reason, the transfer of the Sold Interest [in
Heye] . . . does not occur.” Buschmeier signed the letter and
returned it to Anchor’s German counsel. Thus reassured,
Anchor immediately borrowed $17,330,026.37 against its
revolving line of credit and wired the funds directly into the
personal bank account of Petra Buschmeier, thereby
meeting G & G’s September 8 deadline for making the first
payment.
  When the deadline for making the second payment
arrived one week later, G & G’s Canadian investors still
had not completed their due diligence. The Buschmeiers
once again declined to extend the payment deadline.
Following a series of events irrelevant to the present suit,
G & G’s Canadian investors completely withdrew from
participation in the proposed acquisition of Heye. G & G
attempted to secure replacement financing and negotiations
to save the deal ensued, but none of these efforts bore fruit.
By February 1999 all parties considered the deal to be dead.
When Petra Buschmeier made it clear she had no intention
of refunding the $17 million due to G & G’s breach of the
payment schedule, a substantial volume of litigation
ensued.
  Pursuant to the arbitration clause in the purchase
agreement, G & G requested arbitration before the Interna-
tional Chamber of Commerce (“ICC”) on the question
of whether the September 8 letter, drafted by Deneau and
his attorney and signed by Ulrich Buschmeier, modified the
terms of the purchase agreement such that Petra
Buschmeier was required to return the initial payment. G &
G’s position was that the September 8 letter amended the
original purchase agreement and amounted to an exit
clause, entitling it to rescind the agreement and obtain the
return of the money if the sale went uncompleted for
any reason whatsoever—including, as ultimately occurred,
No. 03-1515                                                       5

G & G’s own inability to timely secure financing.2 Petra
Buschmeier took the position that the September 8 letter
had no effect on the parties’ obligations established in the
purchase agreement, and that the letter was intended to
require the return of the first installment only if the
ultimate transfer of Heye became impossible because of her
own failure to meet her obligations, most notably the
possibility that she would be unable to purchase shares
from the minority shareholders of Heye.
  G & G and Petra Buschmeier were the only parties to the
arbitration proceeding, and hearings before the panel of
arbitrators were held in Germany in June 2001. One of the
key witnesses—if not the key witness—on behalf of G & G
was Deneau. Among other things, Deneau testified about
his conversations with Ulrich Buschmeier on September 7
and 8 that culminated in the drafting and execution of the
September 8 letter at the heart of the dispute.
  After the hearings concluded but before the arbitrators
rendered their decision, Anchor commenced the present
action against the Buschmeiers, seeking return of the initial
installment payment on theories of breach of contract,
fraud, promissory estoppel, conversion, and unjust enrich-
ment. Less than a month after this suit was filed, the ICC
issued a final arbitration decision, denying G & G’s claim
for a refund and sustaining Petra Buschmeier’s counter-
claim for damages. The arbitrators, applying German law
(required by the purchase agreement), held that the legal
effect of the September 8 letter was determined by reference
to Ulrich Buschmeier’s good faith understanding of its
meaning at the time he signed it. More specifically, the

2
  The purchase agreement contained no provision permitting
cancellation, recission or refunding of installments previously paid
on the grounds that funding for additional installments was not
available or that additional due diligence was required by
investors.
6                                                    No. 03-1515

arbitration panel held:
    Therefore, the 8 September 1998 Letter can only be
    given the meaning, significance and relevance as were
    accepted by Mr. Ulrich Buschmeier, in the sense that
    Respondent [Petra Buschmeier] would be obliged to
    return the [initial payment] in case the transaction
    would not materialise for reasons within Respondent’s
    sphere, i.e. if for any reason (or for no reason) Respon-
    dent would not succeed to obtain the Heye shares from
    the numerous Heye minority shareholders (emphasis in
    original).
  In attempting to discern Buschmeier’s understanding
of what he agreed to in the September 8 letter, the arbitra-
tion panel attached great significance to Deneau’s testimony
concerning his preletter conversations with Buschmeier and
Buschmeier’s attorney. The panel concluded that in these
conversations Deneau intentionally downplayed the signifi-
cance of the letter, had not informed Buschmeier of his
intention that the letter operate as an amendment to the
purchase agreement, and had generally attempted to
conceal his intent to engraft an exit clause onto the original
purchase agreement. The panel also relied on the testimony
of the German attorney retained by Anchor to assist in the
drafting of the September 8 letter, finding that Deneau had
intentionally neglected to inform the lawyer that the letter
was intended as an amendment to the purchase agreement,
adding an exit clause.3
  Armed with the arbitration decision in its favor, the
Buschmeiers moved to dismiss Anchor’s lawsuit on the
pleadings, arguing that there was sufficient identity of
the parties and the causes of action such that the arbitra-

3
  We offer no opinion on the correctness of the arbitration panel’s
conclusions and cite them only for an understanding of the
evidence upon which the decision rested.
No. 03-1515                                                    7

tion award against G & G was res judicata as to Anchor’s
claims. The district court held that Pennsylvania
law governed the res judicata analysis and the arbitration
award was res judicata with respect to Anchor’s claims and
therefore dismissed the action. Anchor appeals.

                       II. Discussion
    A. Choice of Law
  Anchor argued in its briefs that the district court erred in
holding that Pennsylvania law governed the res judicata
analysis and contended that the law of the forum state,
Indiana, applied.4 At oral argument, however, Anchor
explicitly withdrew its objection to the district court’s choice
of law; Anchor’s counsel indicated that he had “studied the
issue intently” following briefing and was now of the
opinion that the choice-of-law issue was “academic” because
the res judicata analysis is the same regardless of whether
the law of Indiana or Pennsylvania is applied. We routinely
permit parties to voluntarily abandon previously briefed
issues at oral argument as a means of focusing the issues on
appeal. See, e.g., United States v. Bridges, 760 F.2d 151, 152
n.2 (7th Cir. 1985); Matter of Bero, 110 F.3d 462, 464 n.1
(7th Cir. 1997); Moore v. Bryant, 295 F.3d 771, 776 n.1 (7th
Cir. 2002). Accordingly, we accept the district court’s
conclusion that Pennsylvania law applies and proceed to the

4
   Federal jurisdiction in this case is founded upon diversity of
citizenship, 28 U.S.C. § 1332. The Buschmeiers are residents of
Germany; Anchor is a Delaware Corporation, having its prin-
cipal place of business in Tampa, Florida. The amount in con-
troversy greatly exceeds $75,000. Venue in the Northern District
of Indiana was asserted pursuant to 28 U.S.C § 1391(a)(3) on the
basis that the Buschmeiers were served with process in the
district while visiting a relative there.
8                                                    No. 03-1515

merits of the res judicata analysis.5

    B. Res Judicata Effect of the ICC Arbitration
  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.

     1. Identity of the Causes of Action
  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 agree-
ment—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 let-
ter was an agreement between the Buschmeiers and G & G
Investments calling for performance (return of the initial install-
ment 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 eviden-
tiary 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 Pennsylva-
nia, 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 recov-
ery, 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 deter-
mine 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 permit-
ted 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.

    2. Identity of the Parties
  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 regard-
ing 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 impene-
trable.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 arbitra-
tion 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