KF Industries, Inc. v. Technical Control System, Inc. ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS February 20, 2004
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 03-30561 & 03-30601
Summary Calendar
KF INDUSTRIES, INC.
Plaintiff-Counter Defendant-Appellee
v.
TECHNICAL CONTROL SYSTEMS, INC.
Defendant-Counter Claimant-Appellant
Appeals from the United States District Court
for the Western District of Louisiana
01-CV-2297
Before JONES, BENAVIDES, and CLEMENT, Circuit Judges.
BENAVIDES, Circuit Judge:*
Plaintiff-Appellee KF Industries is a supplier of valves used
in oilfield equipment, and Defendant-Appellant Technical Control
Systems (“TCS”) is a former distributor of KF products. After the
contractual relationship between KF and TCS ended, TCS
unsuccessfully sued KF in Louisiana state court for breach of
*
Pursuant to 5th Cir. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5th Cir. R. 47.5.4.
contract. Several years later, KF sued TCS in federal court for
payments due on an open account. TCS responded with counterclaims
alleging breach of contract and unfair trade practices. The
district court granted KF’s motion for summary judgment on both the
original suit and the counterclaims. TCS now appeals the district
court’s dismissal of TCS’s counterclaims and the district court’s
award of attorney’s fees to KF. We affirm.
I.
The contractual relationship between TCS and KF began in 1995,
when the two parties agreed to make TCS the exclusive distributor
of KF’s floating compact ball valves. In 1996, the contract
expired, and KF rejected TCS’s offer to renew on the same terms.
The parties eventually agreed on a new contract that allowed KF to
terminate the relationship immediately under certain conditions.
The parties’ contractual relationship continued through 1999.
In April 1999, TCS purchased approximately $200,000.00 in valves
from KF. Over the next few months, TCS paid for some of that
inventory. However, when TCS attempted to purchase replacement
parts for some of the valves, KF refused. KF informed TCS that the
valves and replacement parts would be available only through a
company run by Vernon Green, a former TCS officer and employee who
had left TCS and started his own oilfield supply company in 1996.
TCS did not purchase the KF parts through Mr. Green’s company, but
instead began purchasing a different line of valves from one of
KF’s competitors. This new type of valve was incompatible with KF
2
products, and TCS was left with approximately $100,000.00 in
unusable KF parts.
In September 1999, TCS sued Vernon Green and KF in Louisiana
state court for civil conspiracy and for tortious interference with
contractual relations. TCS’s suit alleged that KF and Mr. Green
colluded to cause damage to TCS and that KF agreed to sell products
directly to Mr. Green’s company to TCS’s detriment. In December
2000, TCS amended its suit to add claims that KF had breached the
parties’ 1995-1996 exclusive marketing contract by failing to
renegotiate in good faith. According to TCS, Mr. Green had
surreptitiously funneled information to KF that gave KF an
advantage in the negotiations. The state court granted summary
judgment for KF on all TCS’s claims. See Technical Control Sys. v.
Green, No. 97-2322-1A (La. Dist. Ct. Jan. 3, 2001); Technical
Control Sys. v. Green, No. 97-2322-1A (La. Dist. Ct. Feb. 14,
2001).
After the state court decision, KF demanded in writing the
$113,867.13 TCS still owed for its April 1999 valve order. TCS
paid only $100 of this amount, and KF brought an open account suit
in federal district court for the balance, attorney’s fees, and
costs. TCS asserted, among other defenses, the defense of set-off.
TCS also countersued for breach of contract and unfair trade
practices. According to TCS, KF’s delivery of valves constituted
an implied contract to sell TCS replacement parts for those valves;
3
when KF refused to sell replacement parts, it breached the contract
and engaged in unfair trade practices.
The district court granted KF’s motion for summary judgment on
KF’s open account claim and on TCS’s counterclaims. The district
court reasoned that res judicata preempted TCS’s counterclaims
because the earlier state court decision had already adjudicated
TCS’s contractual relationship with KF. TCS has not challenged the
grant of summary judgment on KF’s open account claim, but has
appealed the grant of summary judgment on the counterclaims. In a
later ruling, the district court awarded KF’s motion for attorneys’
fees, and TCS appealed that ruling as well. The two appeals have
been consolidated.
II.
The first issue in this appeal is whether res judicata bars
TCS’s counterclaims for breach of contract and unfair trade
practices. We conclude that res judicata bars those counterclaims.
To determine the preclusive effect of a prior Louisiana court
judgment, we apply Louisiana law, in this case Louisiana Revised
Statute § 13:4321.1 Lafreniere Park Found. v. Broussard, 221 F.3d
1
That statute provides:
Except as otherwise provided by law, a
valid and final judgment is conclusive between
the same parties, except on appeal or other
direct review, to the following extent:
. . . .
(2) If the judgment is in favor of the
defendant, all causes of action existing at
the time of final judgment arising out of the
transaction or occurrence that is the subject
4
804, 808 (5th Cir. 2000). As interpreted by the Fifth Circuit,
§ 4231 instructs that a state court’s dismissal of a claim bars a
subsequent federal suit if
(1) the judgment was valid; (2) the judgment
is final; (3) the parties to the two actions
are the same; (4) the cause of action asserted
in the federal suit existed at the time of the
prior state court judgment; and (5) the cause
of action asserted in the federal suit arose
out of the transaction or occurrence that was
the subject matter of the state court
litigation.
Id. at 809. In this case, the first four requirements are met: The
state court judgment is valid and final, the parties to the two
actions are the same, and TCS’s action for breach of implied
contract accrued well before the filing of its amended state court
petition in December 2000.
TCS contests only the district court’s determination that its
state court claim and subsequent federal counterclaims focus on the
same “transaction or occurrence.” TCS delineates two transactions:
first, KF’s 1996 refusal to renew the exclusive contract, which was
at issue in the state suit; and second, KF’s 1999 refusal to do
further business with TCS, which is at issue in the current federal
counterclaims. Because these two events were separate
“transactions or occurrences,” TCS argues, res judicata does not
bar the current suit. KF responds that a single “transaction or
matter of the litigation are extinguished and
the judgment bars a subsequent action on those
causes of action.
La. Rev. Stat. Ann. § 13:4231 (West 1991).
5
occurrence” underlies both TCS’s state court claims and TCS’s
federal counterclaims: the ongoing contractual relationship between
KF and TCS.
Courts determine pragmatically whether a particular factual
grouping constitutes a single transaction or multiple discrete
transactions. Lafreniere, 221 F.3d at 810. The preclusive effect
of § 4231 is broad. Id. A state court judgment extinguishes all
claims related to “all or any part of the transaction, or series of
connected transactions, out of which the action arose.” Id.
(quoting Restatement (Second) of Judgments § 24(2)).2 A single
exchange does not necessarily represent a single “transaction or
occurrence”; rather, “[a]ll logically related events entitling a
person to institute legal action against another generally are
regarded as comprising a ‘transaction or occurrence.’” Hy-Octane
Invs. v. G&B Oil Prods., 702 So. 2d 1057, 1060 (La. Ct. App. 1997).
Viewing the case pragmatically, and mindful of the broad
preclusive effects intended by § 4231, we conclude that TCS’s state
and federal claims revolve around a single series of connected
transactions such that the later federal claims fall prey to res
judicata. TCS’s amended state complaint alleged that KF failed to
renegotiate in good faith the parties’ exclusive contract. The
2
Louisiana law controls, but “[b]ecause § 4231 is modeled
on the federal doctrine [of res judicata] and Restatement of
Judgments . . . we consult federal res judicata jurisprudence as
well as the Restatement of Judgments.” Lafreniere, 211 F.3d at
808.
6
claim of bad-faith renegotiation implicates not only this prior
contract, but also the renegotiated contract; presumably, the
renegotiated contract would have been different but for KF’s bad
faith renegotiation. Purchases made under this renegotiated
contract, in turn, gave rise to the implied contract on which TCS
now premises its federal counterclaims. Thus, by alleging bad
faith renegotiation, TCS brought its 1999 purchases from KF within
the scope of the state court suit. Because TCS’s federal
counterclaims arise from that 1999 purchase, res judicata bars
those claims.
TCS argues that its state claims and federal counterclaims
arise from two different contracts and focus on two different
aspects of KF and TCS’s faltering relationship. However, in
determining the boundaries of a “transaction or occurrence,” we
must look to the overall factual predicate for the claims, not
particular facets of that factual predicate. See In re Intelogic
Trace, Inc., 200 F.3d 382, 386 n.3 (5th Cir. 2000); Hy-Octane, 702
So. 2d at 1060. For the same reason, the fact that TCS has also
brought counterclaims for unfair trade practices is irrelevant.
Like the counterclaims for breach of contract, the counterclaims
for unfair trade practices arise from a common factual predicate:
the dispute over KF’s refusal to sell parts to TCS.
At the same time, we decline to endorse the broader
proposition that all claims connected to an ongoing business or
7
contractual relationship must be presented or forfeited whenever
two parties face off in court. Rather, we confine our holding to
a pragmatic assessment of the particular facts at issue in this
case. When, as in this case, state claims concerning one contract
necessarily implicate subsequent contracts, all claims regarding
those contracts should be brought in a single suit. This
conclusion is consistent with the purposes of Louisiana res
judicata law, which aims to prevent multiple lawsuits and to
promote judicial efficiency. See La. Rev. Stat. Ann. § 9:4321 cmt.
a. TCS could easily have amended its state pleadings, which
already included breach of contract claims, to cover the
allegations now presented in its federal counterclaims. Res
judicata bars TCS’s counterclaims.3
III.
We next consider the district court’s award of attorney’s
fees. In calculating attorney’s fees, the district court gave KF
an award that accounted not only for time spent pursuing the open
account claim, but also for time spent defending against TCS’s
counterclaims. TCS concedes that some attorney’s fees are
appropriate but argues that the award should not include fees
related to defending the counterclaims. KF argues that it should
recover fees for defense of the counterclaims because that defense
was necessary to vindicate its open account claim. The magistrate
3
Because res judicata bars TCS’s counterclaims, we do not
consider KF’s alternative arguments.
8
judge agreed with KF, and we affirm.
Because this is a diversity case, Louisiana law governs
attorney’s fees.4 See Grant v. Chevron Phillips Chem. Co., 309
F.3d 864, 875 n.27 (5th Cir. 2002); Mathis v. Exxon Corp., 302 F.3d
448, 461 (5th Cir. 2002). Louisiana statute specifically provides
for recovery of attorney’s fees in suits on open accounts. La.
Rev. Stat. Ann. § 9:2781(A) (West. Supp. 2003).5
Awards of attorney’s fees under state law are reviewed for
abuse of discretion. Mathis, 302 F.3d at 461. However, an error
of law is always an abuse of discretion. See Hussain v. Boston Old
Colony Ins. Co., 311 F.3d 623, 646 (5th Cir 2002). Thus, we must
address TCS’s contention that the district court erred as a matter
of law in awarding fees for defense against a counterclaim.
Given the circumstances presented in this case, we conclude
that the district court did not err. TCS responded to KF’s suit
with the affirmative defense of set-off. In particular, TCS argued
4
The magistrate judge calculated the attorney’s fees award
using methods approved for calculating fees under federal law, but
TCS has not challenged that aspect of the calculations.
5
Louisiana’s open account statute provides:
When any person fails to pay an open account
within thirty days after the claimant sends
written demand therefor correctly setting
forth the amount owed, that person shall be
liable to the claimant for reasonable attorney
fees for the prosecution and collection of
such claim when judgment on the claim is
rendered in favor of the claimant.
La. Rev. Stat. Ann. § 9:2781(A) (West. Supp. 2003).
9
that the open account should not include charges for $ 90,000 of
unusable inventory. TCS’s counterclaim proceeds from an identical
premise: that TCS is not liable for $90,000 worth of unusable
parts. Because the set-off defense asserted to the open account
claim relies upon the same facts and theory as the breach of
contract counterclaim, KF in prosecuting its open account claim
necessarily and simultaneously defended itself against TCS’s
counterclaim. Louisiana statute grants KF the right to recover the
attorney’s fees expended in prosecuting its open account claim.
La. Rev. Stat. Ann. § 9:2781(A). KF does not lose that right
because TCS has chosen to recharacterize one of its defenses as a
counterclaim.
We recognize that such fees are often not recoverable under
the rule followed in Tolmas v. Weichert, 616 So. 2d 244 (La. Ct.
App. 1993), and Moreland v. Lowdermilk, 709 F. Supp. 722 (W.D. La.
1989), both of which involve the deaths of horses put up for
boarding. In Tolmas, the horse’s owner sued, and the stable
reconvened on an open account.6 The stable prevailed and sought
attorney’s fees. The court ruled that the stable could recover
those attorney’s fees related to its open account counterclaim, but
not those fees related to defending against the horse owner’s
original complaint. 616 So. 2d at 247; accord Moreland, 709 F.
6
Under the civil law terminology of Louisiana, a
counterclaim is called a reconventional demand. Black’s Law
Dictionary 441, 1278 (7th ed. 1999).
10
Supp. at 732. Tolmas and Moreland, however, did not involve
defenses and counterclaims that were practically identical. In the
case before us, TCS’s counterclaims raised the same issues as the
defense of set-off and thus forced KF, the open account claimant,
to litigate the counterclaims. We therefore find Tolmas and
Moreland distinguishable.
Because the district court committed no error of law in
awarding attorney’s fees for defense of the counterclaim, and
because TCS offers no other grounds for overturning the district
court’s decision, we conclude that the district court did not abuse
its discretion.
IV.
We therefore AFFIRM the district court’s grant of summary
judgment. We likewise AFFIRM the district court’s award of
attorney’s fees.
11