Paul Haber v. Biomet, Incorporated ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-1670
P AUL H ABER,
Plaintiff-Appellant,
v.
B IOMET, INCORPORATED , and
B IOMET O RTHOPEDICS, INCORPORATED ,
Defendants-Appellees.
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:07-cv-1447-LJM-WTL—Larry J. McKinney, Judge.
A RGUED F EBRUARY 17, 2009—D ECIDED A UGUST 20, 2009
Before P OSNER, K ANNE, and W OOD , Circuit Judges.
W OOD , Circuit Judge. Biomet produces prosthetic
joints, such as artificial hips and knees, and there is
great demand for its products in Florida. To meet this
demand, Biomet contracted with Paul Haber, who
served as a distributor for Biomet in various Florida
counties. The parties structured their relation through
agreements made in 1995 and 1999; those agreements
2 No. 08-1670
contained different methods for dispute resolution. The
1995 version required that disputes be litigated in
Indiana, while the 1999 text required arbitration in Chi-
cago, Illinois. The parties modified the 1995 Agreement
several times between 1995 and 2005. Biomet apparently
believed that the 1995 Agreement’s litigation clause
governed the entire relation between the parties. As
became clear later, Haber thought that the arbitration
clause in the 1999 Agreement controlled.
In 2007, Biomet and Haber’s relation turned sour. Biomet
believed that Haber had violated their agreements by
working for a competitor, and so it filed suit against
Haber in Hamilton Superior Court in Indiana. In
response, Haber filed a complaint to compel arbitration
in the Southern District of Indiana, which dismissed the
case because of improper venue. Haber then filed a
motion to compel arbitration in Hamilton Superior Court,
which granted the motion with respect to Biomet’s claims
arising under the 1999 Agreement, but denied it with
respect to the claims arising under the 1995 Agreement.
(In so ruling, the state court necessarily decided that the
two agreements had to be treated separately.) Haber
chose to appeal only the decision of the federal district
court, leaving the Indiana state court’s decision undis-
turbed.
We conclude that res judicata bars our consideration
of the particular arbitrability issue that Haber asks us to
consider in his appeal. At Haber’s urging, the Hamilton
Superior Court reached that issue first and resolved it. In
addition, the district court’s rationale for dismissing
No. 08-1670 3
Haber’s complaint on the basis of venue was sound.
Therefore, we affirm.
I
As we have already noted, this case involves a garden-
variety relation between a manufacturer and a distributor.
Haber distributed Biomet’s medical devices in several
counties in Florida. The parties launched this arrange-
ment through a letter dated May 26, 1995 (“1995 Agree-
ment”). That document contained the following provision
on the topic of dispute resolution:
It is further agreed that any and all actions concerning
any dispute arising under our relationship shall be
filed and maintained only in a state or federal court
of competent jurisdiction sitting in the State of Indiana,
and both of us consent to such jurisdiction.
The parties later amended this agreement eleven times (in
1995, 1996 (three times), 1997, 1998, 1999, 2001 (three
times), and 2005), mostly to add or remove territories in
which Haber could sell Biomet products. These modifica-
tions always referred to the 1995 Agreement and stated
clearly that they were amendments.
The parties executed a separate agreement in a letter
dated October 8, 1999 (“1999 Agreement”) that addressed
several points: it added Sarasota County to Haber’s
portfolio; it enlarged Biomet’s rights with regard
to various contractual provisions; and it included an
arbitration clause, which stated plainly that the “place
of arbitration shall be Chicago, Illinois.”
4 No. 08-1670
On September 12, 2007, Biomet, believing that Haber
had violated their agreements by working for a
competitor, filed suit in Hamilton Superior Court, a state
court in Indiana; for federal court purposes, Hamilton
County lies within the Indianapolis Division of the South-
ern District of Indiana. See 28 U.S.C. § 94(b)(1). In re-
sponse, Haber filed a complaint in the Southern District
of Indiana to compel arbitration and to stay the state
court proceedings. In its court documents, Biomet ad-
vanced the theory that the choice-of-forum clause con-
tained in the 1995 Agreement governed the entire Biomet-
Haber relationship. Haber expressed the contrary view
that the 1999 Agreement’s arbitration clause controlled
everything. The district court ruled that it lacked authority
to order arbitration because it was not located in the
venue specified by the parties: Chicago, Illinois. In dicta,
it also stated that the 1995 and 1999 Agreements were
separate and that any claims arising under the 1995
Agreement had to be litigated in Indiana. It thus dis-
missed the complaint.
Instead of refiling in Chicago, Haber appealed the
district court’s judgment to this court and at the same
time filed a motion in Hamilton Superior Court to
compel arbitration and stay proceedings. On June 4, 2008,
the Indiana state court granted in part and denied in
part Haber’s motion. It ruled that the 1995 and 1999
Agreements were separate; it required Biomet to
identify which claims arose under which agreement; and
it compelled arbitration on the claims (if any) that fell
under the 1999 Agreement. Haber did not appeal that
decision.
No. 08-1670 5
II
Biomet raises the threshold question whether this
court’s consideration of the arbitrability issue is prohib-
ited by the doctrine of res judicata, in light of the
Hamilton Superior Court’s ruling on arbitrability. State
court judgments are entitled to recognition by federal
courts and are entitled to preclusive effect. 28 U.S.C. § 1738;
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 10 (1983); Merrill Lynch, Pierce, Fenner & Smith v.
Salvano, 999 F.2d 211, 216 (7th Cir. 1993). Indiana, like
most places, recognizes two different types of preclusive
effects: claim preclusion and issue preclusion. See Lanny B.
v. Marion County Dep’t of Child Servs. (In re L.B.), 889
N.E.2d 326, 333 (Ind. Ct. App. 2008). While neither party
is particularly clear about what type of preclusion is at
stake here, issue preclusion seems the likeliest candidate.
The Hamilton Superior Court case has not concluded.
What the court did, however, was to decide that claims
under the 1995 Agreement were not arbitrable. If that
decision is entitled to preclusive effect, then the federal
court would need to follow suit.
Because issue preclusion cannot be applied unless the
rendering court’s decision is final, we must decide what
exactly is necessary for finality in this context. On this
point, the Restatement (Second) of Judgments, to which
the Indiana courts turn, see, e.g., Miller Brewing Co. v.
Indiana Dept. of State Revenue, 903 N.E.2d 64, 68 (Ind.
2009), is instructive:
The rules of res judicata are applicable only when a
final judgment is rendered. However, for purposes of
6 No. 08-1670
issue preclusion (as distinguished from merger and
bar), “final judgment” includes any prior adjudica-
tion of an issue in another action that is determined
to be sufficiently firm to be accorded conclusive effect.
...
g. Criteria for determining finality in the application of issue
preclusion. . . . [T]he court should determine that the
decision to be carried over was adequately delib-
erated and firm, even if not final in the sense of form-
ing a basis for a judgment already entered. Thus
preclusion should be refused if the decision was
avowedly tentative. On the other hand, that the
parties were fully heard, that the court supported
its decision with a reasoned opinion, that the decision
was subject to appeal or was in fact reviewed on
appeal, are factors supporting the conclusion that the
decision is final for the purpose of preclusion. The
test of finality, however, is whether the conclusion
in question is procedurally definite and not whether
the court might have had doubts in reaching the
decision.
Restatement (Second) of Judgments § 13 (1982). See also
Johnson v. Anderson, 590 N.E.2d 1146, 1149 (Ind. Ct. App.
1992) (quoting Restatement (Second) of Judgments § 18,
on finality, with approval). The analysis of finality for
purposes of issue preclusion is an holistic one, focused
on the nature of the judgment itself and specifically
whether it is sufficiently firm and non-tentative.
Once finality has been established, Indiana prohibits
relitigation of an issue when four elements are present:
No. 08-1670 7
(1) the former judgment must have been rendered
by a court of competent jurisdiction; (2) the matter at
issue was, or might have been, determined in the
former suit; (3) the controversy adjudicated in the
former suit was between parties to the present suit;
and (4) the judgment in the former suit was
rendered on the merits.
Leal v. Krajewski, 803 F.2d 332, 334-35 (7th Cir. 1986) (citing
Indiana authorities).
Biomet argues for finality based on the fact that an order
denying a motion to compel arbitration is immediately
appealable as of right in Indiana. See IND. C ODE § 34-57-2-
19. In its latest decision on issue preclusion, Miller, the
Supreme Court of Indiana discussed how appealability
is an important factor for establishing whether an issue
is sufficiently final for issue preclusion purposes:
In general, issue preclusion bars subsequent litigation
of the same fact or issue that was necessarily adjudi-
cated in a former suit. Issue preclusion applies only
to matters actually litigated and decided, not all
matters that could have been decided. The matters
decided must have been appealable in the original
suit. The right to appeal is sufficient even if it is
limited by the discretionary powers of the appellate
court, as is the case in review of Tax Court decisions.
903 N.E.2d at 68 (citations omitted). In Biomet’s opinion,
since Haber failed to appeal the Hamilton Superior
Court’s order, that order is now sufficiently final to
support issue preclusion. Haber takes a stricter view of
the matter. He responds that the state court’s order is not
8 No. 08-1670
a final judgment for purposes of Rule 2(H) of the Indiana
Rules of Appellate Procedure, and thus the Indiana state
court may revisit the order at any time as the case pro-
ceeds. See McLaughlin v. American Oil, 391 N.E.2d 864,
865 (Ind. Ct. App. 1979) (“[A] trial court has inherent
power to reconsider, vacate or modify any previous
order, so long as the case has not proceeded to judg-
ment, i.e., the case is still in fieri.”). Haber argues that he
was not required to appeal the issue immediately, and he
may still appeal after the trial court is completely finished
with it. See Georgos v. Jackson, 790 N.E.2d 448, 452 (Ind.
2003).
As the Restatement of Judgments recognizes, it is a
mistake to equate the concept of finality for purposes of
appellate review with the concept of finality for pur-
poses of issue preclusion. The finality requirement for
appellate review ensures that court resources are used
efficiently and that the appellate court sees the entire
case. Finality in issue preclusion also serves efficiency, by
ensuring that parties who have fully and fairly litigated
a particular issue (which is expressly resolved and neces-
sary to the outcome) do not receive more than one bite
at the apple. As long as the issue is distinct, it does not
matter if other aspects of a case remain to be decided.
Indeed, the fact that Indiana permits interlocutory
appeals of orders denying motions to compel arbitra-
tion tells us that Indiana sees arbitration as sufficiently
independent to warrant individual attention by the courts.
Applying these principles to the case before us, we see
that the key inquiry for issue preclusion purposes is
No. 08-1670 9
whether the decision with respect to arbitrability of claims
under the 1995 Agreement was a final and reasoned
pronouncement of the Hamilton Superior Court. In our
view, it was. Haber put the issue before that court
through his motion to compel arbitration, and the court
took it up. Its ruling was supported by a reasoned
decision, and there is nothing in the record that indicates
that it would revisit the issue at a later time, even
though it retained the power to do so.
Since there was sufficient finality for the purposes
of issue preclusion, the next question is whether the
remainder of the requirements have been satisfied. This
inquiry is straightforward. The Hamilton Superior Court
is a tribunal of competent jurisdiction for this type of
case; it actually decided the question of arbitrability of
the 1995 claims; the parties before that court were
identical to the parties before the district court; and the
case was resolved on the merits of Haber’s motion to
compel arbitration. We conclude that the state court’s
determination was entitled to preclusive effect in the
district court. See 28 U.S.C. § 1738.
III
We now turn briefly to discuss the basis on which the
district court dismissed Haber’s complaint to compel
arbitration: improper venue. We review a dismissal on the
basis of venue de novo. Auto. Mechs. Local 701 Welfare &
Pension Funds v. Vanguard Car Rental USA, Inc., 502 F.3d
740, 746 (7th Cir. 2007).
10 No. 08-1670
Section 4 of the Federal Arbitration Act reads as follows:
The court shall hear the parties, and upon being
satisfied that the making of the agreement for arbitra-
tion or the failure to comply therewith is not in issue,
the court shall make an order directing the parties to
proceed to arbitration in accordance with the terms
of the agreement. The hearing and proceedings, under
such agreement, shall be within the district in
which the petition for an order directing such arbitra-
tion is filed.
9 U.S.C. § 4. When an arbitration clause in a contract
includes a forum selection clause, “only the district court
in that forum can issue a § 4 order compelling arbitra-
tion. Otherwise, the clause of § 4 mandating that the
arbitration and the order to compel issue from the same
district would be meaningless.” Merrill Lynch, Pierce, Fenner
& Smith v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995). When a
complaint requesting arbitration is filed in the wrong
forum, the appropriate response is for the opposing
party to file a motion to dismiss, which should then be
granted by the court. See Cont’l Cas. Co. v. Am. Nat’l Ins.
Co., 417 F.3d 727, 733 (7th Cir. 2005).
Haber relies on a novel theory of waiver, claiming that
Biomet waived its rights under the forum selection
clause by initiating litigation in Indiana. Waiver, however,
“only applies when there has been the voluntary or
intentional relinquishment of a known right.” Vershaw v.
Northwestern Nat’l Life Ins. Co., 979 F.2d 557, 560 (7th Cir.
1992) (internal quotation marks omitted). Biomet may
have waived its right to demand arbitration by filing a
No. 08-1670 11
lawsuit in the Indiana state courts, but Haber then
waived the waiver by seeking to compel the arbitration
proceeding contemplated by the 1999 Agreement. Haber
was not entitled to pick and choose among various parts
of the 1999 Agreement’s arbitration clause. Part of that
clause was a venue provision: any arbitration under the
agreement is to proceed in Chicago.
Haber’s theory of waiver also puts a party like Biomet in
an impossible situation. Here, there were two agree-
ments between the parties: the 1995 Agreement and the
1999 Agreement. They contained different choice-of-
forum clauses. Biomet filed suit in the court specified by
the 1995 Agreement, and in that suit it took the position
that the 1995 Agreement and the 1999 Agreement were
separate. We are loath to infer waiver of its rights
under the 1999 Agreement under these circumstances. If
Haber were correct, Biomet would have had to select at its
peril between invoking its rights under the 1995 Agree-
ment and preserving its right to enforce the 1999 arbitra-
tion clause in its entirety, should any claims later be
deemed arbitrable. We see nothing in either contract
that compels such a choice, and we thus decline to
impose it.
The district court therefore did not err in dismissing
Haber’s complaint because of improper venue. We do
find it strange that Haber did not at some point file a
motion for transfer to the Northern District of Illinois
in Chicago under 28 U.S.C. § 1406, but we can find no
such motion in the record. Given the fact that venue was
a potentially fatal problem for his case, this would have
been the more prudent path to follow.
12 No. 08-1670
Finally, we observe that, while each party took an all-or-
nothing approach to arbitrability, the Hamilton
Superior Court dealt with what claims might be
arbitrable under both the 1995 and 1999 Agreements.
Haber asserted that everything under both agreements
was arbitrable, while Biomet maintained that nothing
was arbitrable. Both the district court and the Indiana
state court rejected these extreme positions. As we read
the two agreements, they were correct to do so. The 1999
Agreement does not follow the form of all the other
amendments to the 1995 Agreement, and the post-
1999 amendments to the 1995 Agreement never refer to
the 1999 Agreement, either as a past amendment or as a
document to be amended. These amendments to the
1995 Agreement do, however, refer regularly to earlier
amendments to that agreement. If we had to decide
this issue, therefore, we would also find no fault in
the district court’s understanding of the scope of the
arbitrable claims.
* * *
The judgment of the district court is A FFIRMED.
8-20-09