Ntch-Wa, Inc. v. Zte Corp. , 921 F.3d 1175 ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
NTCH-WA, INC., a No. 17-35833
Washington corporation,
Plaintiff-Appellant, D.C. No.
2:12-cv-03110-
v. TOR
ZTE CORPORATION, a business
incorporated under the laws of OPINION
the People’s Republic of China,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of Washington
Thomas O. Rice, Chief District Judge, Presiding
Argued and Submitted March 5, 2019
Seattle, Washington
Filed April 25, 2019
Before: Ronald M. Gould and Richard A. Paez, Circuit
Judges, and Dean D. Pregerson, * District Judge.
Opinion by Judge Gould
*
The Honorable Dean D. Pregerson, United States District Judge
for the Central District of California, sitting by designation.
2 NTCH-WA V. ZTE CORPORATION
SUMMARY **
Arbitration / Claim Preclusion
The panel affirmed the district court’s judgment in favor
of ZTE Corp. because claim preclusion barred plaintiff’s
claims in this diversity action.
Plaintiff previously arbitrated breach of contract and
related claims against ZTE USA, a wholly-owned subsidiary
of defendant ZTE Corp. ZTE Corp. was not a party to that
arbitration. The arbitrator denied plaintiff’s claims, a federal
district court affirmed the award, and the Eleventh Circuit
affirmed the district court judgment.
The panel held that the arbitration award and its
confirmation by a district court together barred plaintiff from
pursuing its current claims against ZTE Corp., under the
doctrine of claim preclusion.
In an issue of first impression in this circuit, the panel
held that in a diversity judgment case, the preclusion law of
the state where the federal court, confirming an arbitration
award, sat determined the preclusive effect of the award.
The panel held that Florida law applied because a district
court in Florida confirmed the award.
The panel held that under Florida law, claim preclusion
barred plaintiff’s claims because plaintiff was seeking the
same remedy it sought in arbitration, the evidence needed to
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
NTCH-WA V. ZTE CORPORATION 3
prove plaintiff’s claims here was the same, ZTE Corp. was
in privity with its wholly-owned subsidiary ZTE USA, and
the parties were suing in the same capacity as in the
arbitration.
COUNSEL
Shannon Gallagher (argued), Law Office of Shannon
Gallagher, Irvine, California; Joshua E. Austin, NTCH-WA
Inc., Columbia, South Carolina; for Plaintiff-Appellant.
Laura Eve Besvinick (argued), Stroock & Stroock & Lavan
LLP, Miami, Florida; Michael J. Kapaun, Witherspoon
Kelley, Spokane, Washington; Frank T. Spano, Polsinelli
PC, New York, New York; for Defendant-Appellee.
OPINION
GOULD, Circuit Judge:
Plaintiff-Appellant NTCH-WA, Inc. previously
arbitrated breach of contract and related claims against ZTE
USA, a wholly-owned subsidiary of Defendant-Appellee
ZTE Corp. ZTE Corp. was not a party to that arbitration.
The arbitrator denied NTCH-WA’s claims, the District
Court for the Middle District of Florida confirmed the award
under the Federal Arbitration Act, 9 U.S.C. § 9, and the
Eleventh Circuit affirmed the district court’s judgment.
The question before us is whether the arbitration award
and its confirmation by a district court together bar NTCH-
4 NTCH-WA V. ZTE CORPORATION
WA from pursuing its current claims against ZTE Corp.,
under the doctrine of claim preclusion. 1 We hold that it does.
When a federal court sitting in diversity confirms an
arbitration award, the preclusion law of the state where that
court sits determines the preclusive effect of the award.
Because a district court in Florida confirmed the award here,
Florida law applies. Under Florida law, claim preclusion
bars NTCH-WA’s claims because NTCH-WA is seeking the
same remedy it sought in arbitration, the evidence needed to
prove NTCH-WA’s claims here is the same, ZTE Corp. is in
privity with its wholly-owned subsidiary ZTE USA, and the
parties are suing in the same capacity as in the arbitration.
For these reasons, we affirm the district court’s dismissal of
NTCH-WA’s claims.
I
The background to the current controversy involves
several related parties and suits: NTCH-WA is an entity—
along with PTA-FLA, Inc.; Daredevil, Inc.; and NTCH-
West Tenn., Inc.—“owned and controlled by Eric
Steinmann.” PTA-FLA, Inc. v. ZTE USA, Inc., 844 F.3d
1299, 1302 (11th Cir. 2016). “[T]hey operate together under
the name ‘ClearTalk.’” Id. ClearTalk “offer[s] prepaid and
flat-rate cell phone service to customers with poor credit or
1
The terms “claim preclusion” and “issue preclusion” “have
replaced a more confusing lexicon. Claim preclusion describes the rules
formerly known as ‘merger’ and ‘bar,’ while issue preclusion
encompasses the doctrines once known as ‘collateral estoppel’ and
‘direct estoppel.’” Taylor v. Sturgell, 553 U.S. 880, 892 n.5 (2008). The
term “res judicata” refers “collectively” to claim and issue preclusion.
Id. at 892. For clarity, we use the terms “claim preclusion” and “issue
preclusion,” and we are concerned here with the former.
NTCH-WA V. ZTE CORPORATION 5
who otherwise cannot open accounts with major cell phone
providers.” Id.
The ClearTalk entities filed suit against ZTE USA in
2011, asserting breach of contract and related claims.
Daredevil sued ZTE USA in Missouri; PTA-FLA sued ZTE
USA in South Carolina; and NTCH-West Tenn. sued ZTE
USA in Tennessee. Steinmann sued ZTE USA and ZTE
Corp. in California. ZTE USA moved to compel arbitration,
and the parties eventually stipulated to a consolidated
arbitration. From that point, the arbitration “went forward
as a single unified proceeding that bound ZTE USA, PTA-
FLA, Daredevil, NTCH-WA, and NTCH-West Tenn.”
PTA-FLA, Inc., 844 F.3d at 1303.
In December 2011, the ClearTalk entities filed an
Amended Statement of Claim in the arbitration. In the
Amended Statement, each of the ClearTalk entities asserted
claims against ZTE USA and ZTE Corp., although only
Steinmann had, to that point, brought claims against ZTE
Corp. The ClearTalk entities nonetheless contended that
ZTE Corp. should be a party to the arbitration as to all claims
because ZTE USA and ZTE Corp. “were alter egos of each
other. ZTE Corp. so dominates the operations and decision-
making of ZTE USA that the two entities are in effect
indistinguishable.” In the alternative, the ClearTalk entities
asserted that ZTE USA and ZTE Corp. “were in fact agents
and/or principals and/or coconspirators of each other.”
The arbitrator declined to hear the claims against ZTE
Corp., with the exception of Steinmann’s claims. The
arbitrator determined “that the scope of the arbitration” was
limited to “all the claims, counterclaims, and defenses that
exist or may arise between and among the parties subject to
the jurisdiction of the courts in the lawsuits pending at the
time of the agreement to arbitrate.”
6 NTCH-WA V. ZTE CORPORATION
The arbitration hearing began in August 2013. The
arbitrator “heard close to 30 witnesses, and, in addition,
reviewed many hundreds of exhibits submitted for
consideration.” In February 2014, the arbitrator issued the
Final Award in the arbitration, denying the ClearTalk
entities’ claims. The United States District Court for the
Middle District of Florida confirmed the award under the
Federal Arbitration Act, 9 U.S.C. § 9, and the Eleventh
Circuit affirmed the district court’s judgment. See PTA-
FLA, Inc., 844 F.3d 1299.
Once the arbitrator determined that NTCH-WA could
not proceed against ZTE Corp. in arbitration, NTCH-WA
initiated this action. Its Second Amended Complaint
asserted claims for breach of contract, tortious interference,
fraudulent misrepresentation, negligent misrepresentation,
promissory estoppel, and unjust enrichment against ZTE
Corp. The district court stayed the case several times
pending the conclusion of arbitration. After the Eleventh
Circuit rendered its decision, the district court lifted the stay
and granted ZTE Corp.’s motion for summary judgment,
dismissing NTCH-WA’s claims. The district court held that
the arbitration award precludes NTCH-WA from pursuing
its current claims. NTCH-WA filed a timely notice of
appeal.
II
We review de novo whether claim preclusion bars
NTCH-WA’s claims. Harris v. Cty. of Orange, 682 F.3d
1126, 1131 (9th Cir. 2012).
NTCH-WA V. ZTE CORPORATION 7
III
A
At the threshold, we address a choice-of-law question:
namely, which law determines the preclusive effect of the
arbitration award? The district court in this case applied
federal law, ZTE Corp. contends that Florida law applies, 2
and NTCH-WA contends that Washington law applies. The
question is one of first impression in our circuit.
A federal-court order confirming an arbitration award
has “the same force and effect” as a final judgment on the
merits, 9 U.S.C. § 13, including the same preclusive effect.
See Fid. Fed. Bank, FSB v. Durga Ma Corp., 387 F.3d 1021,
1023 (9th Cir. 2004) (“A judgment confirming an arbitration
award is treated similarly to any other federal judgment.”);
see also Apparel Art Int’l, Inc. v. Amertex Enters. Ltd.,
48 F.3d 576, 585 (1st Cir. 1995) (holding that “when a
federal district court enters a judgment confirming an
arbitration award pursuant to the Federal Arbitration Act,
that judgment has res judicata effect as to all matters
adjudicated by the arbitrators and embodied in their award”);
Rudell v. Comprehensive Accounting Corp., 802 F.2d 926,
929 (7th Cir. 1986) (giving claim preclusive effect to an
arbitration award confirmed by a district court); Restatement
(Second) of Judgments § 84(1) (1982) (subject to certain
exceptions not relevant here, “a valid and final award by
arbitration has the same effects under the rules of res judicata
. . . as a judgment of a court”). “[F]ederal common law
governs the claim-preclusive effect of” a judgment rendered
“by a federal court sitting in diversity.” Semtek Int’l Inc. v.
Lockheed Martin Corp., 531 U.S. 497, 508 (2001). But
2
ZTE Corp. relies primarily on federal law in its brief, however.
8 NTCH-WA V. ZTE CORPORATION
federal common law, in such circumstances, requires us to
“determine the preclusive effect of the prior [federal]
decision by reference to the law of the state where the
rendering federal diversity court sits.” Daewoo Elecs. Am.
Inc. v. Opta Corp., 875 F.3d 1241, 1246–47 (9th Cir. 2017);
see also Taco Bell Corp. v. TBWA Chiat/Day Inc., 552 F.3d
1137, 1144 (9th Cir. 2009).
Because a federal-court order confirming an arbitration
award has “the same force and effect” as a final judgment on
the merits, 9 U.S.C. § 13, and because we determine the
preclusive effect of a prior federal diversity judgment by
reference to the law of the state where the rendering court
sat, we hold that when a federal court sitting in diversity
confirms an arbitration award, the preclusion law of the state
where that court sits determines the preclusive effect of the
arbitral award. Such a rule properly mirrors the rule that
applies when a federal court is asked to give preclusive effect
to an arbitration award that has been confirmed by a state
court. See Caldeira v. Cty. of Kauai, 866 F.2d 1175, 1178
(9th Cir. 1989) (“The state court’s confirmation of the
arbitration award constitutes a judicial proceeding for
purposes of [28 U.S.C. § 1738], and thus must be given the
full faith and credit it would receive under state law. . . . To
determine whether the requirements of issue preclusion are
satisfied, this court must look to the law of the state in
question.”); see also Lynne Carol Fashions, Inc. v. Cranston
Print Works Co., 453 F.2d 1177, 1184 (3d Cir. 1972) (“It has
long been the law that the Full Faith and Credit Clause of the
Constitution and the federal statute implementing that clause
have made that which has been adjudicated in one state res
judicata to the same extent in every other. Since the
arbitration award involved here, and the judgment entered
thereon, were rendered in New York, a Pennsylvania trial
court must accord that award the same res judicata effect that
NTCH-WA V. ZTE CORPORATION 9
New York courts would. And because a federal district court
in a diversity case must apply the same principles of res
judicata as would the corresponding state trial court, the
federal court is also bound to apply the New York law of res
judicata to the facts of this dispute.” (quotations omitted));
18B Charles Alan Wright et al., Federal Practice &
Procedure § 4475.1 (2d ed. 2018 update) (“[I]t seems to be
agreed that once a state court has confirmed an award, the
full faith and credit statute requires other courts to look to
the law of that state.”). Applying the same preclusion law to
determine the preclusive effect of a confirmed arbitration
award—whether confirmed by a state court or a federal court
sitting in diversity—is logical and prevents “the sort of
‘forum-shopping . . . and . . . inequitable administration of
the laws’ that Erie seeks to avoid.” Semtek, 531 U.S. at 508–
09 (quoting Hanna v. Plumer, 380 U.S. 460, 468 (1965)).
Here, the arbitration took place in Florida and was
confirmed by the District Court for the Middle District of
Florida sitting in diversity there. See PTA-FLA, Inc.,
844 F.3d at 1304–05, 1309–13. Because a federal district
court in Florida confirmed the arbitration award, we hold
that Florida law governs its preclusive effect.
B
Florida gives preclusive effect to arbitration awards
confirmed by federal district courts. See ICC Chem. Corp.
v. Freeman, 640 So. 2d 92, 92–93 (Fla. Dist. Ct. App. 1994)
(per curiam). Under Florida claim-preclusion law, “[a]
judgment on the merits rendered in a former suit between the
same parties or their privies, upon the same cause of action,
by a court of competent jurisdiction, is conclusive not only
as to every matter which was offered and received to sustain
or defeat the claim, but as to every other matter which might
with propriety have been litigated and determined in that
10 NTCH-WA V. ZTE CORPORATION
action.” Kimbrell v. Paige, 448 So. 2d 1009, 1012
(Fla. 1984) (quoting Wade v. Clower, 114 So. 548, 552 (Fla.
1927)). Claim preclusion applies when the following
conditions are met: “(1) identity of the thing sued for;
(2) identity of the cause of action; (3) identity of persons and
parties to the action; and (4) identity of quality in persons for
or against whom the claim is made.” Fla. Bar v. St. Louis,
967 So. 2d 108, 119 (Fla. 2007) (quotation omitted). We
conclude that those conditions are met here. 3
1
First, the arbitration and this action concern the same
“thing sued for”: monetary damages. Fla. Bar, 967 So. 2d
at 119. That the damages were sought under various legal
theories is inapposite; the identity-of-the-thing-sued-for
prong “focuses on the difference between money damages
and injunctive relief—not on difference[s] between the type
of monetary damages sought.” In re Residential Capital,
LLC, 513 B.R. 446, 459 (Bankr. S.D.N.Y. 2014) (applying
Florida law); see also Dougan v. Bradshaw, 198 So. 3d 878,
883 (Fla. Dist. Ct. App. 2016) (“With respect to the identity
of the thing being sued for, Appellant’s replevin action
sought the return of his property while Appellant’s instant
3
NTCH-WA disputed only the privity requirement in its opening
brief. It contended for the first time in its reply brief that the arbitration
and this case concern different causes of action. Normally we do not
address “arguments not raised by a party in its opening brief,” Smith v.
Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999), but we address the four
requirements of claim preclusion here because the district court did not
apply Florida law and ZTE Corp. is not prejudiced by our consideration
of all four requirements, see Hall v. City of L.A., 697 F.3d 1059, 1071
(9th Cir. 2012) (noting that we may consider issues not raised in a party’s
opening brief “if the opposing party will not suffer prejudice”).
NTCH-WA V. ZTE CORPORATION 11
suit sought money damages . . . and an injunction . . . .
These ‘things’ are not identical.”).
2
Second, NTCH-WA’s cause of action here is the same as
its cause of action in the arbitration. Under Florida law,
“[t]he determining factor in deciding whether the cause of
action is the same is whether the facts or evidence necessary
to maintain the suit are the same in both actions.” Albrecht
v. State, 444 So. 2d 8, 12 (Fla. 1984), superseded by statute
on other grounds as stated in Bowen v. Dep’t of Envtl.
Regulation, 448 So. 2d 566, 568–69 (Fla. Dist. Ct. App.
1984); accord Youngblood v. Taylor, 89 So. 2d 503, 505
(Fla. 1956) (“[T]he test of the identity of the causes of action,
for the purpose of determining the question of res adjudicata,
is the identity of the facts essential to the maintenance of the
actions.” (emphasis in original and quotation omitted)).
Both actions allege the following facts: In 2006, PTA-
FLA agreed to purchase wireless telecommunications
equipment from ZTE Corp. and its wholly-owned U.S.
subsidiary ZTE USA. PTA-FLA intended to use the
equipment to establish a wireless network in Florida. But
when the equipment allegedly did not work, the parties
shifted their focus to other markets.
In late 2007, Daredevil entered into an agreement (the
“Missouri Agreement”) with ZTE Corp. and ZTE USA to
establish a wireless network in Missouri. Under that
agreement, the ZTE entities agreed to provide base stations
and handsets to Daredevil at favorable prices. NTCH-WA,
as an affiliate of Daredevil, is alleged to be a third-party
beneficiary of the handset provision of the agreement.
12 NTCH-WA V. ZTE CORPORATION
Around the same time, the ZTE entities and the
ClearTalk entities agreed to establish a wireless network in
Washington. As part of that plan, the ClearTalk entities
agreed to purchase remote switches from the ZTE entities.
The ZTE entities delivered two remote switches. Those
switches relied on a primary switch, located in Tennessee, to
function. NTCH-WA accordingly sought and received
assurances from ZTE agents that the primary switch would
function. As an additional part of the plan, the parties
amended the Missouri Agreement, in the “Missouri
Addendum,” and agreed that ZTE Corp. and ZTE USA
would send forty base stations originally intended for use in
Missouri to Washington instead. NTCH-WA is alleged to
be a third-party beneficiary of the Missouri Addendum.
Relying on these agreements and promises, NTCH-WA
allegedly expended significant resources to prepare a
Washington network for use. The problem, as NTCH-WA
alleges it, is that the primary switch in Tennessee never
worked, and the ZTE entities never provided the base
stations and handsets that were promised, giving rise to
various claims. In the arbitration, NTCH-WA asserted
claims for breach of contract, fraud, and unjust enrichment.
Here, NTCH-WA has asserted claims for breach of contract,
tortious interference, fraudulent misrepresentation,
negligent misrepresentation, promissory estoppel, and unjust
enrichment.
Regardless of the disparate theories of the claims
asserted, the arbitration and this suit concern the same facts:
NTCH-WA alleges that the ZTE entities—in the Missouri
Agreement and Addendum, and through the representations
of agents—promised to provide working
telecommunications equipment to NTCH-WA but failed to
do so. The relevant evidence—what was promised, what
NTCH-WA V. ZTE CORPORATION 13
was delivered, and damages sustained—would be the same
in both actions. Because the two suits concern the same facts
and evidence, they are the same “causes of action” under
Florida law. See Albrecht, 444 So. 2d at 12.
NTCH-WA contends that the causes of action differ
because this case concerns different contracts and different
activities than the arbitration. That is not so. NTCH-WA is
relying on the same contracts (the Missouri Agreement and
Addendum), the same promises (certain equipment would be
provided and the equipment would work), and the same
alleged bad acts (failure to make the primary switch
operational, to provide base stations, and to provide
handsets) as it did in the arbitration.
3
Third, privity exists between ZTE Corp. and ZTE USA,
ZTE Corp.’s wholly-owned U.S. subsidiary. Under Florida
law, “[t]o be in privity with a party to an earlier lawsuit, ‘one
must have an interest in the action such that she will be
bound by the final judgment as if she were a party.’”
Provident Funding Assocs., L.P. v. MDTR, 257 So. 3d 1114,
1118 (Fla. Dist. Ct. App. 2018) (quoting Pearce v. Sandler,
219 So. 3d 961, 965 (Fla. Dist. Ct. App. 2017)).
Florida treats parent corporations and subsidiaries as
privies for purposes of preclusion. See Jenkins v. Lennar
Corp., 972 So. 2d 1064, 1066 (Fla. Dist. Ct. App. 2008)
(“Because Universal is a subsidiary of Lennar, they are
privies, and thus, the parties to each of the previous lawsuits
are identical.”); see also Beepot v. J.P. Morgan Chase Nat’l
Corp. Servs., Inc., 57 F. Supp. 3d 1358, 1371 (M.D. Fla.
2014) (applying Florida law and concluding that a parent and
subsidiary were privies); Mercer v. Honda Motor Co., 551 F.
Supp. 233, 234–35 (M.D. Fla. 1982) (holding the same). In
14 NTCH-WA V. ZTE CORPORATION
a similar vein, Florida treats controlling shareholders of a
corporation as privies of the corporation. See, e.g., Zikofsky
v. Marketing 10, Inc., 904 So. 2d 520, 525–26 (Fla. Dist. Ct.
App. 2005); Red Carpet Corp. of Panama City Beach v.
Roberts, 443 So. 2d 377, 380 (Fla. Dist. Ct. App. 1983).
Here, there is no dispute that ZTE USA is, and was, ZTE
Corp.’s wholly-owned subsidiary. Under Florida law, this
parent-subsidiary relationship is sufficient to show privity at
the time of the arbitration.
NTCH-WA nonetheless contends that ZTE USA and
ZTE Corp. were not in privity because, in connection with a
motion to dismiss in this action, an agent of ZTE Corp.
declared that ZTE Corp. and ZTE USA are different
corporate entities, have different principal places of
business, and have different assets. 4 The declaration,
however, states that ZTE USA is ZTE Corp.’s wholly-owned
U.S. subsidiary. As explained, a parent-subsidiary
relationship is sufficient under Florida law to establish
privity for purposes of preclusion.
4
Fourth, NTCH-WA, on the one hand, and ZTE Corp. and
ZTE USA, as privies on the other, are suing and being sued
in the same capacities—their corporate capacities—as in the
4
As a preliminary matter, NTCH-WA did not rely on this
declaration in its opposition to ZTE Corp.’s motion for summary
judgment. It is an improper basis on which to allege error. See Forsberg
v. Pac. Nw. Bell Tel. Co., 840 F.2d 1409, 1417–18 (9th Cir. 1988) (“If a
party wishes the court to consider an affidavit for more than one issue,
the party should bring that desire to the attention of the court. Having
failed to do so, Forsberg cannot now fault the district judge for failing to
consider the affidavit.”). But in any event, the declaration does not
change the outcome.
NTCH-WA V. ZTE CORPORATION 15
arbitration. Thus, the last requirement for claim preclusion
under Florida law is met. See Ford v. Dania Lumber &
Supply Co., 7 So. 2d 594, 595 (Fla. 1942) (“One essential
element of [claim preclusion] is identity of parties suing in
the same capacity.”); see also Couch Constr. Co. v. Fla.
Dep’t of Transp., 537 So. 2d 631, 632 (Fla. Dist. Ct. App.
1988).
C
NTCH-WA contends that claim preclusion should not
apply because of ZTE Corp.’s “gamesmanship.” NTCH-
WA alleges that ZTE Corp. actively tried to remain out of
the arbitration proceeding, and succeeded in doing so.
NTCH-WA contends that, for that reason, ZTE Corp. should
not be able to invoke claim preclusion as a defense here.
NTCH-WA’s contention is unpersuasive. Because ZTE
Corp. was in privity with ZTE USA at the time of the
arbitration, it is functionally as if ZTE Corp. had been a party
to that proceeding. See Provident Funding, 257 So. 3d at
1118 (explaining that “[t]o be in privity with a party to an
earlier lawsuit, ‘one must have an interest in the action such
that she will be bound by the final judgment as if she were a
party’” (quoting Pearce, 219 So. 3d at 965)). NTCH-WA’s
reliance on F.T.C. v. Garvey, 383 F.3d 891 (9th Cir. 2004),
is misplaced; the parties there were not in privity. Moreover,
ZTE Corp. was not a party to the arbitration, with respect to
NTCH-WA’s claims, because NTCH-WA had not yet sued
ZTE Corp. ZTE Corp.’s absence was not the result of
“gamesmanship.”
16 NTCH-WA V. ZTE CORPORATION
IV
The district court correctly concluded that claim
preclusion bars NTCH-WA’s claims here, and correctly
entered judgment in favor of ZTE Corp.
AFFIRMED.