Canal Capital Corp. v. Valley Pride Pack ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-1892
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Canal Capital Corporation, a *
Delaware Corporation, *
*
Plaintiff - Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Valley Pride Pack, Inc., also known as *
Pine Valley II, Inc., a Wisconsin *
Corporation, *
*
Defendant - Appellee. *
___________
Submitted: December 18, 1998
Filed: February 22, 1999
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Before MURPHY, JOHN R. GIBSON, and MAGILL, Circuit Judges.
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MURPHY, Circuit Judge.
This appeal turns on whether Canal Capital Corporation (Canal) is barred by
a prior state court action from now seeking to recover unpaid livestock fees from
Valley Pride Pack, Inc. (Valley Pride) (formerly known as Pine Valley Meats, Inc.
and also known as Pine Valley II, Inc.). The district court dismissed Canal’s federal
complaint, and Canal appeals. We reverse.
I.
Canal’s claim for livestock or yardage fees is based on a 1936 agreement
between St. Paul Union Stockyards Company, Canal’s predecessor, and Morris
Rifkin, Valley Pride’s predecessor. Morris Rifkin operated a meat packing plant
adjacent to the Union Stockyards. In the agreement Rifkin promised to pay livestock
fees, to abide by the stockyard rules, to maintain its property, and not to sue Union
Stockyards under certain circumstances. Union Stockyards in turn promised to allow
Rifkin water and sewer access and to provide and maintain a cattle walkway from the
stockyards to Rifkin’s plant.
Canal claims that the agreement requires fees for three types of cattle delivery
to the packing plant: for animals purchased at the stockyards and then delivered to
the plant; for animals purchased elsewhere but first delivered to the stockyards and
then moved to the plant; and for animals that never pass through the stockyards, such
as cattle trucked directly to the plant. Canal’s federal claim seeks fees for the third
type of delivery; it describes them as “direct” fees. Morris Rifkin’s son, who later
became the owner of the plant, testified that Rifkin paid such fees when animals were
delivered directly to the packing plant. Valley Pride maintains that the 1936
agreement does not require it to pay such fees because of the way it purchases
livestock.
Valley Pride purchased Rifkin’s plant in 1986 at a time when the plant was not
operating. It resumed operations in 1987, and in 1988 Canal asked Valley Pride to
pay direct fees owing for the period from the reopening. Valley Pride did not respond
to the request, and Canal took no further action. Canal sold the stockyards in 1989
to United Market Services Company (UMS), but retained ownership of some real
estate surrounding the stockyards, including property upon which the cattle walkway
was located. As part of the sale, Canal assigned to UMS its rights in outstanding
contracts related to the stockyards.
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In March 1995, Canal removed the cattle walkway from the property it retained
adjacent to the stockyards, and two months later Valley Pride sued in state court to
regain use of the walkway and to obtain damages for the period during which its plant
was closed because of the removal.1 Canal counterclaimed in three counts — for
interference with prospective business relations, for “an accounting and determination
of the fees owed to it” under the 1936 agreement, and for a determination that it had
properly revoked Valley Pride’s license to use the walkway. Valley Pride
successfully moved to dismiss Canal’s counterclaims. The trial court dismissed the
first count as being without merit and ruled that the third count was properly an
affirmative defense. Although Canal argued that it had not intended the 1989
assignments to UMS to include its rights to livestock fees under the 1936 agreement,
the trial court accepted Valley Pride’s argument that Canal had assigned its rights to
the fees to UMS and dismissed without prejudice the claim for an accounting of fees
because of lack of standing.
Valley Pride claimed in the state case that the 1936 agreement had created a
contractual obligation to maintain the cattle walkway and that Canal’s action in
removing it had breached the contract. Valley Pride also sued on a number of other
theories, including promissory estoppel, interference with prospective business
relations, and trespass. One of Canal’s defenses to the breach of contract claim was
that the 1936 agreement had merely given the packing plant a license to use the
walkway, rather than imposing a continuing contractual obligation upon the owner
of the stockyards to maintain it.2 Canal raised twelve affirmative defenses to Valley
1
A portion of the walkway was on property owned by the South St. Paul
Housing and Redevelopment Authority (HRA), and Valley Pride joined the HRA in
the state action as a necessary party. The plant was shut down for over three months
before the cattle walkway could be rebuilt and the plant could reopen as a result of
a preliminary injunction.
2
The court ruled before trial that the 1936 agreement had created a license, but
that a question remained as to whether it had also created a contractual obligation not
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Pride’s complaint. One of these defenses was alleged in this way: “Canal has not
received payments as required by [the 1936 agreement].” Among the other eleven
affirmative defenses were claims that the statute of frauds was a bar, that Valley Pride
had not obtained from Rifkin the walkway rights it asserted, that under the 1936
agreement trucking livestock the short distance from the stockyards to the plant was
a reasonable alternative to the walkway, that an agreement with the HRA gave Canal
a legal privilege to close the walkway, and that the walkway license was
unenforceable because HRA’s master plan had effectively condemned the walkway.
The state case proceeded to trial in May 1996. Although Canal’s counterclaim
for an accounting of the amount of livestock fees it was owed had been dismissed,
Canal introduced evidence about livestock fees in defending against the breach of
contract claim. At the close of Valley Pride’s case, Canal moved for a directed
verdict on all of Valley Pride’s claims. The trial court denied the motion. In
reference to the contract claim, it said that lack of consideration had been “raised as
an issue of ongoing performance” but there was evidence that one of Valley Pride’s
suppliers had paid some livestock fees.3 That evidence about the supplier related to
fees for cattle delivery via the stockyards. There was no evidence of any payment of
“direct” fees, and the court never addressed the issue of whether Valley Pride owed
direct fees.
Instructions were given to the jury on Valley Pride’s claims for breach of
contract, promissory estoppel, interference with prospective business relations, and
trespass. The court instructed that a breach could be justified (“failure without legal
justification to perform all or any substantial part of what is promised in a contract
is a breach of that contract”) and that a breach could be waived (“[a] party’s
continued recognition of a contract as binding after the other party’s alleged breach
to terminate the license before the purpose of the agreement was fulfilled.
3
The court also mentioned there was a possible waiver issue.
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may act as a waiver of that breach”). The only reference to affirmative defenses was
that “[a]n affirmative defense must be proved in the same way that a claim must be
proved.” No affirmative defenses were identified, and no instruction was given
regarding any particular affirmative defense, including the one related to livestock
fees, or on any need to consider such defenses in connection with Valley Pride’s
breach of contract claim. The damage instructions addressed only damage to Valley
Pride; no potential offsets for livestock fees were mentioned.
The state case was submitted to the jury with special verdict forms. The forms
contained two questions relating to Valley Pride’s breach of contract claim; six
questions relating to the promissory estoppel, interference with prospective business
relations, and trespass claims; one question relating to compensatory damages; and
two questions relating to punitive damages. The questions relating to breach of
contract were as follows:
Question 1: Has [Valley Pride] proved that a contract remained
in effect between it and Canal Capital Corporation on March 22, 1995?
Question 2: If your answer to question number 1 was “Yes” then
answer this question: Did Canal Capital Corporation breach the contract
with [Valley Pride] by removing the Cattle Walkway?
The jury answered “Yes” to both of these questions. It also answered all six
questions relating to the promissory estoppel, interference with prospective business
relations, and trespass claims in favor of Valley Pride. It awarded Valley Pride
$350,000 in compensatory damages and $50,000 in punitive damages. There were
no special verdict questions about any type of livestock fees or any other affirmative
defense.
Canal filed a post trial motion for judgment notwithstanding the verdict or for
a new trial. It raised many arguments in its thirty-three page supporting brief. Those
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relating to the breach of contract claim were that the 1936 agreement had only created
a license, that Canal had given timely notice of its intent to remove the walkway, that
there had been a “basic and fundamental change in the terms and surrounding
conditions of the 1936 Agreement,” and that “the ongoing consideration required in
the 1936 Agreement was simply not being made.” Canal also presented arguments
regarding the claims for promissory estoppel, trespass, and interference with
prospective business; damages; and alleged trial errors. Only one paragraph of
Canal’s thirty-three page brief argued its affirmative defense regarding unpaid
consideration.
In denying the post trial motion, the trial court’s written order addressed a
number of Canal’s arguments for a new trial, but made only a general statement
explaining its position on the request for judgment notwithstanding the verdict on
Valley Pride’s liability claims:
Competent evidence was presented by Plaintiff which could reasonably
support the verdict in Plaintiff’s favor. Defendants fail to recite any
specific material fact dispute where the jury’s findings were
overwhelmingly against the weight of the evidence. Thus, Defendants
are not entitled to JNOV, and that motion is denied.
The court did not discuss any of Canal’s specific arguments about its entitlement to
judgment on Valley Pride’s claims or mention anything about the affirmative defense
in respect to fees. The order was entered in September 1996 and contained a
permanent injunction requiring Canal to maintain the cattle walkway.
Canal appealed the judgment and the dismissal of its counterclaim for livestock
fees. The Minnesota Court of Appeals affirmed most of the findings on liability and
most of the relief granted, as well as the dismissal of Canal’s counterclaim for lack
of standing, but reversed the punitive damages. Pine Valley Meats, Inc. v. Canal
Capital Corp., 566 N.W.2d 357, 361–66 (Minn. Ct. App. 1997). There was no
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discussion on the merits of the livestock fee counterclaim or the affirmative defense
relating to fees. The Minnesota Supreme Court denied further review. Pine Valley
Meats, Inc. v. Canal Capital Corp., No. C5-96-2051, slip op. at 1 (Minn. Sept. 18,
1997).
Meanwhile, Canal had reacquired the right to livestock fees under the 1936
agreement by entering into an assignment contract with UMS in July 1996. In order
to protect itself from the running of the limitations period, Canal had sued in federal
court in October 1996 to recover what it estimated to be in excess of one million
dollars in livestock fees owed by Valley Pride. Since the state appeal was still
pending, the parties stipulated to a dismissal without prejudice of the federal case and
the tolling of the statute. Canal recommenced its suit in federal court in September
1997 after the appeal had been decided. Valley Pride moved to dismiss or for
summary judgment on the basis of the Rooker-Feldman doctrine and issue preclusion.
The district court ruled from the bench to grant summary judgment to Valley Pride,
and Canal’s appeal is now before us.
II.
A.
The Rooker-Feldman doctrine is named after two Supreme Court cases —
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court
of Appeals v. Feldman, 460 U.S. 462 (1983). Rooker held that federal district courts
have no appellate jurisdiction over state courts — the United States Supreme Court
is the only federal court with such power. 263 U.S. at 416. The Supreme Court went
on to explain in Feldman that federal district courts may not exercise jurisdiction over
issues that are “inextricably intertwined” with a prior state court judgment. 460 U.S.
at 482 n.16, 486. A federal claim is inextricably intertwined with a state court
judgment when “the relief requested in the federal action would effectively reverse
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the state court decision or void its ruling.” Bechtold v. City of Rosemount, 104 F.3d
1062, 1065 (8th Cir. 1997); see Keene Corp. v. Cass, 908 F.2d 293, 296–97 (8th Cir.
1990).
Valley Pride argues that because Canal used unpaid livestock fees as an
affirmative defense in state court and evidence was presented about them, Canal’s
claim in federal court is inextricably intertwined with the state court judgment and is
barred under the Rooker-Feldman doctrine. Canal argues that the doctrine does not
apply because the state court action did not decide what amount of direct fees, if any,
was owed to it by Valley Pride. Although Canal attempted to have that question
decided in the state case by its counterclaim for an accounting, the state court
dismissed the counterclaim for lack of standing on Valley Pride’s motion. Canal
therefore did not have an opportunity in the state action to seek the livestock fees to
which it claims it is entitled.
The question before us is whether Canal’s federal claim to recover unpaid
livestock fees was “inextricably intertwined” with the state court judgment. Feldman,
460 U.S. at 482 n.16, 486. That is, whether Canal’s claim for an accounting or
payment of direct livestock fees “would effectively reverse” the state judgment.
Bechtold, 104 F.3d at 1065. In order to determine this we must examine “exactly
what the state court held and whether [an award of livestock fees to Canal] requires
determining the state court’s decision is wrong or would void its ruling.” Charchenko
v. City of Stillwater, 47 F.3d 981, 983 (8th Cir. 1995); see Snider v. City of Excelsior
Springs, 154 F.3d 809, 811 (8th Cir. 1998).
We have carefully reviewed the state court proceedings and the manner in
which the state case was submitted and decided. Canal’s counterclaim for an
accounting of fees was dismissed at the outset for lack of standing, over its objection
and on motion of Valley Pride. The state court did not give any instructions about
livestock fees or ask the jury any questions about them. The damage instructions
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were entirely focused on the compensation sought by Valley Pride and contained no
mention of any potential offset. In ruling on Canal’s extensive post trial motion, the
court merely stated that judgment notwithstanding the verdict was denied because
“the jury’s verdict and award of damages are reasonably supported by the evidence.”
It made no comment on the fee argument advanced by Canal. The record does not
show that either the court or jury ever made findings of any type about livestock fees
and neither had occasion to calculate any fees that might have been owing.
The jury returned a verdict in favor of Valley Pride on its contract claim, but
we do not know what subsidiary findings it made. Given the way the case was
submitted, it cannot be known what the jury may or may not have decided about
livestock fees, but it is known that Canal’s counterclaim was eliminated for lack of
standing.
The issue of nonpayment of fees as a breach defense is not identical to the issue
of whether Valley Pride owed any type of livestock fees and in what amount. The
latter question was the subject of the dismissed counterclaim, and it was not
submitted to the jury or decided in the state action. Once Valley Pride moved to
dismiss the counterclaim for lack of standing and the court granted the motion,
Canal’s attempt to obtain compensation from Valley Pride for unpaid fees was not in
the case. If the court had ruled differently, or the parties had taken action to obtain
reassignment of the rights or to join UMS, all the issues could have been determined
in the state case. As it was, the state court did not have occasion to determine
whether Canal could recover fees if it once again obtained standing, and neither the
jury in its verdict nor the trial court in its rulings ever announced any finding that
Valley Pride was not liable for direct livestock fees.
This situation is different from cases in which the Rooker-Feldman doctrine
has barred federal jurisdiction. When the goal of the federal action is to nullify a state
judgment, it is barred. See, e.g., Rooker, 263 U.S. at 414 (barring “a bill in equity to
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have a judgment of a circuit court in Indiana . . . declared null and void”); In re
Goetzman, 91 F.3d 1173, 1177 (8th Cir. 1996) (federal judgment could not be sought
to “change the state court result”). Similarly, a federal action cannot properly proceed
against judicial officers overseeing a state case where the aim is to obtain a different
result in federal court. See, e.g., Feldman, 460 U.S. at 468 n.2 (no subject matter
jurisdiction over claims seeking review of decisions of the “District of Columbia
Court of Appeals, the Chief Judge of the District of Columbia Court of Appeals in his
official capacity, the Committee on Admissions, and the Chairman and Secretary of
that Committee”); LaNave v. Minnesota Supreme Court, 915 F.2d 386, 387–88 (8th
Cir. 1990) (no subject matter jurisdiction over claim that the Minnesota Supreme
Court, the Minnesota Board of Law Examiners, and the members in their official
capacities violated plaintiff’s constitutional rights). Likewise, a federal court may not
assume jurisdiction over an action pleaded under 42 U.S.C. § 1983 which actually
seeks to raise a claim already decided in state court. See, e.g., Bechtold, 104 F.3d at
1066 n.3 (“substance of Bechtold’s due process claims” already decided by state
court); Schutterle v. United States, 74 F.3d 846, 847 (8th Cir. 1996) (losing party in
state court could not proceed with a § 1983 action). In all six of these cases the
federal action was an attempt to obtain a different result on a claim actually decided
in state court. The situation before this court is more analogous to Charchenko, 47
F.3d at 982–83 (although issue had been presented to state court, state court did not
decide it so federal jurisdiction was proper).
Here the state judgment is not under attack or in danger of nullification. Valley
Pride’s judgment contained an injunction to keep the cattle walkway open and
damages for its prior closure. That state judgment will not be affected by the federal
action, which would result at most in a determination that some amount of unpaid
livestock fees must be paid by Valley Pride. Any determination in federal court that
Valley Pride owes direct livestock fees would not mean the state court’s decision was
“wrong,” nor would it “void its ruling.” It would not undermine the state injunction
or the damages Valley Pride was previously awarded from Canal for the period when
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the plant could not operate. Canal’s federal livestock fee claim is thus not
inextricably intertwined with the state court decision, and the Rooker-Feldman
doctrine does not prevent the district court from assuming jurisdiction over Canal’s
claim.
B.
In a diversity case, a federal court is required by 28 U.S.C. § 1738 to apply
state law to questions of issue preclusion. See Bechtold, 104 F.3d at 1066.
Minnesota requires preclusion if all four of the following elements are present:
“(1) the issue was identical to one in a prior adjudication; (2) there was
a final judgment on the merits; (3) the estopped party was a party or in
privity with a party to the prior adjudication; and (4) the estopped party
was given a full and fair opportunity to be heard on the adjudicated
issue.”
Id. at 1066–67 (quoting Willems v. Commissioner of Pub. Safety, 333 N.W.2d 619,
621 (Minn. 1983) (quotations omitted)).
In the prior action the issue to be precluded must have been “necessary and
essential to the resulting judgment.” Hauser v. Mealey, 263 N.W.2d 803, 808 (Minn.
1978). Issue preclusion in Minnesota “must rest upon a more solid basis than mere
speculation as to what was actually adjudicated in the prior action.” Parker v. MVBA
Harvestore Sys., 491 N.W.2d 904, 906 (Minn. Ct. App. 1992). Canal’s counterclaim
for an accounting was dismissed for lack of standing so it was never considered by
either the jury or the judge in the state case.4 It would be mere speculation to
4
The cases cited by Valley Pride on issue preclusion are factually and
procedurally different from this case. For example, in Wanamaker v. Albrecht,
No. 95-8061, 1996 WL 582738 (10th Cir. Oct. 10, 1996), issues were precluded that
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conclude that the jury or court in that case decided whether Valley Pride owed direct
livestock fees, and they certainly never had occasion to consider the amount that may
have been owed. Moreover, whether any failure by Valley Pride to pay livestock fees
could excuse Canal from maintaining the cattle walkway is not the same issue as a
determination of what amount of direct fees, if any, Valley Pride owes Canal. Since
it cannot be said that the direct fee issue was ever decided on the merits in the prior
state court case, the issue is not precluded.
C.
In summary, we conclude that neither the Rooker-Feldman doctrine nor issue
preclusion bar the claim presented by Canal in this case. We therefore reverse and
remand for further proceedings not inconsistent with this opinion.
A true copy.
ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
were equivalent to affirmative defenses in a prior case; here the dismissed
counterclaim, rather than the affirmative defense, is the equivalent of the claim now
brought in federal court. In Donnkenny, Inc. v. Nadler, 712 F. Supp. 429, 431
(S.D.N.Y. 1989), a claim was precluded that was “substantively identical” to a
counterclaim that had been decided in a prior action; here the federal claim is
substantively identical to a counterclaim dismissed without prejudice in the prior
case.
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