U.S. West Financial Services, Inc. v. Buhler, Inc. ( 1998 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
_____________
No. 97-3548MN
_____________
U.S. West Financial Services, Inc., *
a Colorado corporation, *
*
Appellant, *
*
v. *
*
Buhler, Inc., a Minnesota corporation; *
Buhler International, Ltd., a Swiss *
corporation, *
* On Appeal from the United
Appellees, * States District Court
* for the District of
----------------------------- * Minnesota.
*
U.S. West Financial Services, Inc., *
as assignee of Reuter Recycling of *
Florida, Inc., a Florida corporation, *
*
Appellant, *
*
v. *
*
Buhler, Inc., a Minnesota corporation; *
Buhler Brothers, also known as *
Buhler International, Ltd., *
*
Appellees, *
----------------------------- *
*
U.S. West Financial Services, Inc., *
as assignee of Reuter Recycling of *
Florida, Inc., a Florida corporation, *
*
Appellant, *
*
v. *
*
Buhler, Inc., a Minnesota corporation; *
Buhler Brothers, also known as *
Buhler International, Ltd., *
*
Appellees. *
___________
Submitted: May 13, 1998
Filed: July 31, 1998
___________
Before RICHARD S. ARNOLD, JOHN R. GIBSON, and FAGG, Circuit Judges.
___________
RICHARD S. ARNOLD, Circuit Judge.
This appeal arises out of the construction of a municipal waste composting
facility in Pembroke Pines, Florida, by Reuter Recycling of Florida. Buhler, Inc.,
which is owned by Buhler International, Ltd. (then known as Buhler Brothers, Inc.),
provided equipment, design, and engineering services for the facility. U.S. West
Financial Services lent Reuter money to finance the facility. Less than a year after the
facility began operation, it was shut down by the state because of odor problems.
Reuter defaulted on its loan payments to U.S. West and assigned its legal rights to U.S.
West.
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U.S. West initiated arbitration against Buhler Inc. and Buhler International on
fraud and negligence claims. It then alleged substantially the same claims in federal
suits, against both Buhler parties in its capacity as lender, and against Buhler
International in its capacity as Reuter’s assignee. The District Court1 stayed both
actions pending the arbitration award. Ultimately, the arbitration panel awarded no
damages to U.S. West. Buhler Inc. and Buhler International then moved to confirm the
arbitrators’ decision, and U.S. West moved to vacate or modify it as to Buhler
International. The District Court confirmed the award as to both defendants. It
dismissed U.S. West’s assignee action on grounds of res judicata. In U.S. West’s
lender action, it granted summary judgment for Buhler Inc. and Buhler International.
On appeal, U.S. West challenges the dismissal of its assignee action against
Buhler International and the dismissal of its lender action against both Buhler parties.
We affirm.
I.
In 1990, Reuter and Buhler Inc. agreed that Buhler would design, engineer, and
provide equipment for the Pembroke Pines facility’s material separation and recovery
system and composting process. The contract included a requirement that
controversies arising from it be arbitrated. Later, U.S. West agreed to lend Reuter
$48,545,000 to finance the facility. Soon after the facility was completed and began
operation in October 1991, it developed odor problems and was cited and fined for
violations of state odor regulations. U.S. West lent Reuter an additional $4,700,000
to address these problems. The facility had to close in November 1992.
1
The Hon. David S. Doty, United States District Judge for the District of
Minnesota.
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When the plant’s odor problems began, Reuter initiated arbitration against
Encorp, the designer of the underground aeration system, for design and construction
defects, and was awarded $2.5 million. In December 1994, Reuter initiated arbitration
against Buhler Inc. and Buhler International. Buhler Inc. asked the District Court to
stop the arbitration, on grounds that the claims should have been addressed in the
Encorp litigation. The Court allowed the arbitration to proceed.
In 1995, Reuter defaulted on its loan and assigned its legal rights to U.S. West.
In January 1996, U.S. West filed its own arbitration complaint against Buhler Inc. and
Buhler International. It sought damages on theories of fraudulent and negligent
misrepresentation, promissory estoppel, negligent design and professional malpractice,
breach of contract, and unjust enrichment. As described below, the Buhler parties
repeatedly contested Buhler International’s party status.
Before the arbitration hearing, U.S. West filed two suits. First, with respect to
the inducement of its loan to Reuter, it asserted against both Buhler parties claims of
negligent misrepresentation, fraud, and promissory estoppel. Second, as assignee of
Reuter’s legal rights, and in response to Buhler International’s resistance to inclusion
in the arbitration, it alleged against Buhler International substantially the same claims
that it had raised against both Buhler parties in its arbitration complaint.2
The arbitration hearing was held in November 1996 and lasted 17 days. At its
conclusion, the panel decided: “Claimant is awarded no damages from Respondents
on any of its claims.” Appellant’s Add. at 26. The caption of the award notice
included both Buhler parties.
2
Against both parties, U.S. West also alleged breach of a 1986 partnership
agreement between Reuter and Buhler Inc. This claim is not now before us.
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The Buhler parties moved for summary judgment in both federal actions, on
grounds of res judicata and collateral estoppel. They also sought confirmation of the
panel’s decision in a state court, pursuant to 9 U.S.C. § 9 (1994) and Minn. Stat. Ann.
§ 572.18 (West 1988). U.S. West removed the confirmation action to federal court
and sought to vacate or modify the award, as applied to Buhler International only,
pursuant to 9 U.S.C. §§ 10 and 11 (1994). The District Court confirmed the award as
to both Buhler parties. In the assignee action, it granted summary judgment in favor
of Buhler International, on grounds of res judicata. In the lender action, it granted
summary judgment in favor of both Buhler parties, on the ground that there were no
material facts in dispute.
II.
U.S. West challenges the District Court’s application of res judicata to its
assignee action against Buhler International. It argues that Buhler International was not
a party and, therefore, that the arbitration award was not a final decision on the merits
of its claims against Buhler International. We affirm.
We assess the preclusive effect of the arbitration award on U.S. West’s assignee
action under Minnesota law. See Mandich v. Watters, 970 F.2d 462, 465 (8th Cir.
1992). Under Minnesota law, “ ‘[a] judgment on the merits constitutes an absolute bar
to a second suit for the same cause of action, and is conclusive between parties and
privies . . ..’ ” Dorso Trailer Sales, Inc. v. American Body & Trailer, 482 N.W.2d 771,
774 (Minn. 1992) (quoting Mattsen v. Packman, 358 N.W.2d 48, 49 (Minn. 1984)
(citations omitted)). The doctrine “should not be rigidly applied; rather, it focuses on
whether its application results in an injustice against the party to be precluded.” Sondel
v. Northwest Airlines, 56 F.3d 934, 938 (8th Cir. 1995) (citing Houlihan v. Fimon, 454
N.W.2d 633, 635 (Minn. App. 1990)). A final arbitration award, unless it is set aside
for a legally sufficient reason, has the same preclusive effect as a judgment.
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The procedural history of the arbitration supports the District Court’s finding that
Buhler International was a party. U.S. West named Buhler International as a respondent
in its arbitration complaint and attempted to serve the complaint on it. U.S. West never
asked to dismiss Buhler International formally, and in fact opposed Buhler
International’s counsel’s proposal to do so. As a formal matter, then, from the time that
Buhler International was named as an arbitration party to the time when it was included
in the arbitration award’s caption, its party status never changed.
We recognize that the Buhler parties resisted the inclusion of Buhler International
as a party to the arbitration. Buhler Inc.’s response to the arbitration complaint denied
that Buhler International was a proper party to the arbitration, and Buhler International
did not serve an answer itself. In February 1996, counsel for the Buhler parties moved
the arbitration panel to dismiss Buhler International, though the panel did not do so. In
a May 1996 letter, their counsel reiterated that Buhler International was not a party to
the arbitration. When U.S. West brought its lender action against the Buhler parties, the
Buhler parties did not argue that the claims against Buhler International had to be
arbitrated, as they did regarding the claims against Buhler Inc.
However, we do not believe that these actions amounted to, or resulted in, the de
facto dismissal of Buhler International from the arbitration proceedings. U.S. West still
obtained extensive information from Buhler International, which the arbitration panel
ordered to participate in discovery despite its objections. Buhler International produced
approximately fifteen boxes of documents. In fact, the Buhler parties’ counsel informed
the arbitration panel that he had provided to U.S. West “all nonprivileged documents
from both Buhler Inc. and Buhler International related to the Pembroke Pines
Composting Facility . . ..” Appellant’s App. at 833. Additionally, U.S. West deposed
Herman Hofer, the Buhler parties’ expert in odor and “the Buhler International
employee most directly involved in the design of the Facility . . ..” Appellant’s App. at
162 (aff. of Buhler counsel). Though, as U.S. West asserts, these
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acts do not themselves render Buhler International a party, they do indicate that U.S.
West did not lack access to information pertinent to Buhler International’s liability.
Further, Buhler International’s conduct and knowledge appear to have figured
prominently in the arbitration hearing. It is true that, in its opening statement at the
hearing, U.S. West counsel said, “we are not asking this panel for a determination of
either liability or the amount of damages with respect to Buhler International LTD in
this case.” Appellant’s App. at 193. However, this statement was immediately
followed by a disclaimer: “Having said that, I will tell the panel that it’s going to be
difficult in this case to present the evidence without presenting evidence of the
involvement of Buhler International LTD. I think the panel is going to hear a lot of
evidence about where the original design for this composting system came from, who
was involved and the people from [Buhler International]. So I believe there are some
common factual backgrounds . . .. ” Id.
The record indicates that U.S. West did indeed present, and the arbitration panel
considered, substantial evidence relevant to Buhler International’s liability. U.S. West’s
arbitration brief alleged odor problems at “the 80 - 100 facilities [Buhler International]
had designed and engineered.” Appellant’s App. at 215. Its opening statement alleged
that Reuter had been lied to about odor problems at a Buhler plant in Germany and that
“major odor problems” at other foreign plants had been concealed. Appellant’s App.
at 194-95. U.S. West’s assignee action would have depended on proof of these same
odor problems. The overlap of “common factual backgrounds” is especially significant
in light of the fact that the alleged odor problems were in plants operated by Buhler
International, and not its U.S. subsidiary Buhler Inc. As Buhler counsel explained in the
memorandum supporting the Buhler parties’ application to confirm the award, “only
Buhler International supplied composting equipment to facilities outside the United
States” and “only Buhler International had supplied equipment to approximately 80 -
100 composting facilities.” Appellant’s App. at 146, n.2. U.S. West does not deny
these assertions.
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U.S. West argues that, in the arbitration hearing, “U S WEST tried to show that
Buhler USA asked others -- including Buhler Int’l., its parent corporation -- how to
build and design such a plant and what problems had been previously faced and dealt
with. This is entirely different than stating U S WEST offered the testimony of Buhler
Int’l’s employee as evidence that Buhler Int’l made false or misleading statements.”
Appellant’s Reply Br. at 8. However, U.S. West’s opening statement alleged that
Herman Hofer, the Buhler parties’ odor expert, had concealed evidence of odor
problems during a test run of the Pembroke Pines facility. Appellant’s App. at 194-95.
Mr. Hofer was a Buhler International employee. Additionally, in U.S. West’s answers
to Buhler Inc.’s arbitration interrogatories, it alleged misrepresentations by other Buhler
International employees. Appellant’s App. at 200. U.S. West does not specify
instances of alleged fraud, beyond those already explored in arbitration, that it would
seek to prove in further litigation.
Because Buhler International technically remained a party throughout the
arbitration, and because U.S. West presented substantial evidence relevant to Buhler
International’s liability during the hearing, the District Court’s finding that Buhler
International had been a party was not error. We believe that the arbitration panel
considered U.S. West’s claims against Buhler International on their merits fully, and we
are not convinced that its use of the plural “respondents” in the award was inadvertent.
We find U.S. West’s other arguments against res judicata unpersuasive. First,
we reject its challenge that the award is ambiguous and should be remanded for
clarification, because it did not raise this issue before the District Court. Further, it
contends that Buhler International cannot benefit from the arbitration award because it
did not sign the arbitration agreement, and because it was estopped by its resistance to
inclusion in the arbitration. Noting the District Court’s characterization of the litigation
process on both sides -- “nobody is being real clear about what they want to
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do because I think they also want to maintain the argument the other way,” Appellant’s
App. at 512-13 -- we hold that these arguments are belied by U.S. West’s own course
of conduct in these proceedings. See Twomey v. Durkee, 291 N.W.2d 696, 699 (Minn.
1980) (“Plaintiffs by acquiescing in and participating in the proceeding in effect
represented . . . that the dispute was arbitrable, and that the parties would be bound by
the decision and award . . ..”).
We therefore hold that the District Court’s application of res judicata did not
result in “injustice.” Sondel, 56 F.3d at 938. Rather, it properly acted “to relieve
parties of the burden of relitigating issues already determined in a prior action . . ..”
Buetz v. A.O. Smith Harvestore Products, Inc., 431 N.W.2d 528, 531 (Minn. 1988).3
III.
We also affirm the District Court’s grant of summary judgment in U.S. West’s
lender action. For evidence of a genuine issue of material fact, U.S. West relied on the
deposition of Joseph Blankenship, U.S. West’s project manager and loan officer:
Q. In any event, did Buhler ever misrepresent anything to you or
make any fraudulent statements to U S WEST that you are
aware of?
A. No, but if there were problems going on in some of the
European facilities that Buhler was aware of, they didn’t
bring them up either. What represents misrepresentation, is
it omission?
3
The motion of U.S. West to supplement the record is granted, but the
supplemental materials presented do not change our view as to the conclusiveness of
the arbitration award.
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Q. I will ask you about the omission. Did the
Buhler folks ever, you think, fail to tell you
something, did you ever ask them about any
problems with any of their facilities, did they
ever lie to you or misrepresent? Maybe your
response was if there was a problem out there
and they didn’t tell you about it, that would be
an omission that you might think of?
* * *
A. I do not believe and I have never felt that Buhler people
either lied or in the same term [sic] purposefully
misrepresented.
Q. One of the things you just mentioned is you think if they
knew about some problems in terms of odor, that if they are
guilty of anything, they are guilty of the sin of omission, if
you will, for failing to raise the issue?
A. I think they probably knew more than they were telling.
Appellant’s App. at 406-07. Blankenship’s vague statements do not create a genuine
issue of material fact as to the Buhler parties’ knowledge and misstatement of odor
problems, key elements of U.S. West’s fraud claims. Summary judgment was therefore
proper.
We also affirm the District Court’s denial of U.S. West’s post-judgment motions.
U.S. West first filed a motion to reconsider, along with additional affidavits from
Blankenship and another employee, which attested to fraudulent conduct by the Buhler
parties. The District Court denied this motion: “[n]otwithstanding the procedurally
defective nature of plaintiff’s motion [failure to comply with the procedural requirement
of obtaining “express permission” from the court to file such a motion, Local Rule
7.1(g)], the court has reviewed plaintiff’s motion and determines that it has failed to
make the requisite showing of compelling circumstances.” Appellant’s App. at 685
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(Order at 2 (Sept. 16, 1997)). U.S. West then resubmitted its motion as a Rule 59(e)
motion to alter or amend the judgment. The Court summarily denied this second
motion.
U.S. West admits that the affidavits it wished to submit were available to it before
the entry of judgment. Appellant’s Reply Br. at 21. It was not an abuse of discretion
for the Court to deny U.S. West’s Rule 59(e) motion “to introduce new evidence that
could have been introduced during pendency of the summary judgment motion . . ..”
Global Network Techs., Inc. v. Regional Airport Auth., 122 F.3d 661, 665-66 (8th Cir.
1997) (citation omitted).
We therefore affirm the judgment of the District Court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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