Court Opinion

ID: 2969242
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:45:14.525611+00
Date Added: 2024-06-11T11:43:24.392407
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
8    Agrolinz, Inc., et al. v. Micro Flo Co.      No. 98-6015                      Pursuant to Sixth Circuit Rule 206
                                                                           ELECTRONIC CITATION: 2000 FED App. 0030P (6th Cir.)
                                                                                       File Name: 00a0030p.06
trial court err in concluding that the parties did not intend to
preclude Micro Flo from pursuing its outstanding reserved
claims against Agrolinz in arbitration. Accordingly, the trial
court’s disposition is affirmed for the reasons set forth          UNITED STATES COURT OF APPEALS
herein.                                                                              FOR THE SIXTH CIRCUIT
                                                                                       _________________

                                                                                                ;
                                                                                                 
                                                                    AGROLINZ, INC. and
                                                                                                 
                                                                    AGROLINZ MELAMIN,
                                                                                                 
                                                                    G.M.B.H.,
                                                                                                 
                                                                                                                No. 98-6015
                                                                            Plaintiffs-Appellants,
                                                                                                 
                                                                                                  >
                                                                             v.                  
                                                                                                 
                                                                                                 
                                                                            Defendant-Appellee. 
                                                                    MICRO FLO COMPANY,
                                                                                                 
                                                                                                1

                                                                              Appeal from the United States District Court
                                                                           for the Western District of Tennessee at Memphis.
                                                                           No. 97-02566—Bernice B. Donald, District Judge.
                                                                                     Argued: September 22, 1999
                                                                                 Decided and Filed: January 20, 2000
                                                                      Before: KRUPANSKY and NORRIS,* Circuit Judges;
                                                                                  GWIN, District Judge.

                                                                       *
                                                                        The Honorable James S. Gwin, United States District Judge for the
                                                                   Northern District of Ohio sitting by designation.

                                                                                                     1
2    Agrolinz, Inc., et al. v. Micro Flo Co.     No. 98-6015      No. 98-6015       Agrolinz, Inc., et al. v. Micro Flo Co.      7

                    _________________                             conclusion that in the event that there has been no
                                                                  adjudication on the merits of a contested issue, the “extent to
                         COUNSEL                                  which a judgment or decree entered by consent is conclusive
                                                                  in a subsequent action should be governed by the intention of
ARGUED: Robert A. McLean, FARRIS, MATHEWS,                        the parties … rather than a mechanical application of the
BRANAN & HELLEN, Memphis, Tennessee, for Appellants.              general rules governing the scope of estoppel by judgment
Leo M. Bearman, Jr., BAKER, DONELSON, BEARMAN &                   [claim preclusion].” Long v. Kirby-Smith, 292 S.W.2d 216,
CALDWELL, Memphis, Tennessee, for Appellee.                       220 (Tenn. Ct. App. 1956); see also Apstein v. Tower
ON BRIEF: Robert A. McLean, FARRIS, MATHEWS,                      Investments of Miami, Inc., 544 So. 2d 1120, 122 (Fla. Dist.
BRANAN & HELLEN, Memphis, Tennessee, for Appellants.              Ct. App. 1989), the Florida court concluded that the intent of
Leo M. Bearman, Jr., Jennifer R. Keown, BAKER,                    the settling parties as to what was included in the settlement
DONELSON, BEARMAN & CALDWELL, Memphis,                            controls the effect of a consent dismissal with prejudice.
Tennessee, for Appellee.
                                                                    In both Florida and Tennessee the party asserting claim
                    _________________                             preclusion has the burden of proving the elements of that
                                                                  legal principle. The instant case requires Agrolinz to prove
                        OPINION                                   that the issues embraced by Micro Flo’s Tennessee arbitration
                    _________________                             action had been determined on the merits by a previous
                                                                  judicial disposition and/or that it had been the intention of the
  KRUPANSKY, Circuit Judge.               Plaintiff-Appellants    adverse parties to include those issues in the dismissal with
Agrolinz, Inc. and Agrolinz Melamin, G.m.b.H., hereafter          prejudice articulated in the Florida consent decree.
collectively referred to as “Agrolinz,” challenge the denial of
their motion for summary judgment and the grant thereof to          Agrolinz has not carried its burden of proving either
Defendant-Appellee, the Micro Flo Company, requiring              requirement necessary to support its “issue preclusion”
Agrolinz to defend itself in arbitration against breach of        argument. To the contrary, the evidence developed in the
contract and other claims made by Micro Flo.                      record weighs heavily in favor of Micro Flo. It is apparent
                                                                  that Micro Flo, from the very outset of negotiations with
  On September 8, 1992, Agrolinz, Inc. and Agrolinz               plaintiffs to settle the Florida Cases, intended to seek
Melamin, G.m.b.H. (Agrolinz) and Micro Flo Co. (Micro Flo)        arbitration of its claims against Agrolinz for the cost of
entered into a Manufacturing and Distribution Agreement           copper sulfate and other raw materials remaining in its
(Agreement) under the terms of which Agrolinz granted             inventories, together with the cost of its stocked Cuproxat, in
Micro Flo exclusive rights to manufacture and distribute its      addition to shipping, storage and interest costs. Agrolinz, its
proprietary agricultural fungicide “Cuproxat” throughout the      insurance carriers and all participating legal counsel were
United States in consideration for Micro Flo’s commitment to      aware of Micro Flo’s intention to pursue arbitration for the
annually purchase assigned minimum quantities of copper           recovery of its described damages. In the context of the
sulfate, the basic active ingredient of Cuproxat, from            instant case this appellate review is in accord with the district
Agrolinz.                                                         court and finds that it did not err in concluding that Micro
  The Agreement also incorporated an arbitration provision        Flo’s claims which are the subject of the Tennessee
that referenced the Commercial Rules of the American              arbitration had not been adjudicated on their merits by the
                                                                  Florida court that journalized the consent decree, nor did the
6       Agrolinz, Inc., et al. v. Micro Flo Co.           No. 98-6015        No. 98-6015      Agrolinz, Inc., et al. v. Micro Flo Co.        3

Micro Flo had breached its contract with Agrolinz by failing                 Arbitration Association. Specifically, Section 20 of the
to purchase the contractually-agreed minimum quantities of                   Agreement, entitled “Arbitration,” provided in pertinent part:
copper sulfate and by failing to promote Cuproxat in the
United States for the duration of its five-year exclusive                      Any controversy or claim between the parties hereto
contract.                                                                      arising, directly or indirectly, out of or relating to the
                                                                               present Agreement or transactions pursuant thereto, or
  The parties filed cross-motions for summary judgment. On                     the breach thereof, including tort or other non-contractual
June 22, 1998, the district court granted summary judgment                     type claims, shall be finally settled by arbitration in
in favor of Micro Flo.                                                         accordance with the Commercial Arbitration Rules of the
                                                                               American Arbitration Association (“AAA”) then in
  On appeal, Agrolinz has urged that under Florida law an                      effect, and any judgment upon the award rendered by the
agreed dismissal “with prejudice” is a judgment “on the                        arbitrator may be entered in any court having jurisdiction
merits” so as to 3bar future litigation under the doctrine of                  thereof … Arbitration proceedings shall be held at
claim preclusion. Agrolinz has argued that the Full Faith and                  Memphis, Tennessee, U.S.A..
Credit Clause of the United States Constitution mandates the
federal district court in Tennessee to afford the Florida court’s              Rule 47 of the Commercial Arbitration Rules of the AAA
consent decree the same effect it would have in Florida and                  47 states that, “no judicial proceeding by a party relating to
bar Micro Flo’s arbitration action presently pending in                      the subject matter of the arbitration shall be deemed a waiver
Tennessee.                                                                   of the party’s right to arbitrate.”
   In addressing the issue, Florida legal precedent discloses                  The companies commenced implementation of the
that in a settlement of a pending legal controversy by consent               Agreement, with Micro Flo marketing Cuproxat to farms
decree, the words “with prejudice” incorporated into the                     throughout the United States.
stipulation of dismissal are without legal significance and will
not bar a subsequent suit arising from the seminal case unless                 In the fall of 1993, two Florida farms that used Cuproxat
there has been a judicial adjudication on the merits of the                  notified Micro Flo that their current tomato and pepper crops
issues joined in the seminal suit. In North Shore Realty Corp.               had been damaged by an herbicide identified as “2,4-D”
v. Gallagher, 99 So. 2d 255, 257 (Fla. Dist. Ct. App. 1957),                 which was not normally found in Cuproxat. The Florida
the court concluded that an order of dismissal “with                         farms charged that the Cuproxat used on their crops had been
prejudice” should be treated as a dismissal without prejudice,               contaminated with 2,4-D. Micro Flo concluded that the
and the words “with prejudice” disregarded as surplusage                     source of the 2,4-D was copper sulfate it had received from
when it is apparent that there had been no adjudication of the               Agrolinz pursuant to their contract.
substantive issues joined by the pleadings.                 See
also Hassentuefel v. Howard Johnson, Inc., 52 So. 2d. 810,                     During the fall of 1994, David C. Brown Farms, Red Star
812 (Fla. 1951). Tennessee precedent is in accord.                           Farms, Inc., Di Mare Homestead, Inc., Di Mare Ruskin, Inc.,
Moreover, Tennessee and Florida subscribe to the legal                       and other Florida farms, all of whom had purchased and used
                                                                             Cuproxat manufactured by Micro Flo and sold by Farmers
    3
      Pursuant to Heyliger v. State Univ. & Community College Sys. of
Tenn., 126 F.3d 849, 852 (6th Cir. 1997), the term “claim preclusion” will
replace “res judicata” as traditionally defined under Tennessee precedent.
4       Agrolinz, Inc., et al. v. Micro Flo Co.           No. 98-6015        No. 98-6015      Agrolinz, Inc., et al. v. Micro Flo Co.     5

Supply Inc.,1 commenced legal proceedings within the                           The final disposition of the Florida Cases, however, was
Twentieth Judicial Circuit of Florida which were designated                  not journalized until on or about May 17, 1997. During the
as a class action (the Florida Cases).2 In response, Micro Flo               intervening period, legal counsel for Micro Flo and Agrolinz
filed a cross-claim and a third-party claim against Agrolinz                 conducted telephone discussions, some of which were
wherein Micro Flo sought recovery under theories of                          memorialized by an exchange of correspondence, wherein
negligence, strict liability and breach of implied warranty of               Micro insisted that it intended to and would pursue arbitration
fitness, resulting damages arising from lost revenue from                    imposed by the September 8, 1999 agreement against
sales of Cuproxat, loss of good will and litigation expenses                 Agrolinz for repayment of the purchase price for raw
incident to defending the Florida Cases together with                        materials, and cost of finished product remaining in its
indemnity in the full amount of damages and judgments                        inventories together with related freight, storage and interest
obtained against Micro Flo, if any, by the plaintiffs in those               costs, irrespective of releasing Agrolinz from the payment of
cases. In its cross-claim and third-party claim against                      contribution and/or indemnity that Micro Flo may have been
Agrolinz, Micro Flo did not seek repayment of the purchase                   required to pay the Plaintiffs, including litigation expenses
price of its remaining inventories of copper sulfate purchased               and attorney’s fees arising from the Florida Cases.
from Agrolinz nor the cost of its remaining contaminated
stock of Cuproxat still on hand, freight, storage and interest                 In an effort to avoid jeopardizing the settlement of the
expenses -- all of which claims were incorporated into its                   Florida case, on May 17, 1997, Micro Flo and Agrolinz
subsequently initiated Tennessee arbitration proceeding.                     journalized the following consent decree:
  The parties have agreed that Tennessee law applies to the                         ORDER OF DISMISSAL WITH PREJUDICE
resolution of the instant dispute.
                                                                                 UPON THE FOREGOING STIPULATION, this cause
  Recognizing their precarious legal liability and the                         and all claims asserted herein by MICRO FLO CO.
magnitude of their financial exposure, Agrolinz, Micro Flo                     against AGROLINZ INC. and AGROLINZ MELAMIN
and their respective insurance carriers pursued the generally                  be and the same are hereby dismissed with prejudice.
accepted modus operandi of convenient cooperation in
negotiating an umbrella settlement common to all of the                         DONE AND ORDERED in Chambers, at Collier
multiple- party plaintiffs in the Florida Cases.                               County, this 17th day of May, 1997.

  Ultimately, all of the Florida Cases including the Red Star                  On May 28, 1997, Micro Flo initiated arbitration
Farms, Inc. litigation was settled on or about January 10,                   proceedings in the state of Tennessee before the American
1997.                                                                        Arbitration Association claiming $1,000,000 in damages for
                                                                             repayment of its cost of the contaminated raw materials
                                                                             supplied by Agrolinz and used in the manufacture of
                                                                             Cuproxat, its available stock of Cuproxat, freight, storage and
    1                                                                        interest.
    Farmers Supply, Inc. was the dealer which sold Cuproxat supplied
by Micro Flo to the farmers that initiated the Florida Cases.                  Agrolinz responded to the arbitration action by seeking the
    2                                                                        instant declaratory and injunctive relief, together with a
     The Red Star Farms Inc., litigation, for reasons not explained in the   counterclaim for $3,500,000 before the United States District
record, was considered and resolved separate and apart from the
disposition of the other Florida Cases.                                      Court for the Western District of Tennessee alleging that