Post, LLC v. Berkshire Hathaway Specialty Insurance Company ( 2022 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
POST, LLC
Plaintiff,
v. Civil Action No. 20-2972 (JDB)
BERKSHIRE HATHAWAY SPECIALTY
INSURANCE COMPANY,
Defendant.
MEMORANDUM OPINION
Plaintiff POST, LLC (“POST”) brings this suit against defendant Berkshire Hathaway
Specialty Insurance Company (“BHSIC”) in its capacity as a surety for WCS Construction, LLC
(“WCS”). POST, a construction company, alleges that WCS failed to pay for work POST
performed as a subcontractor to WCS and that, by the terms of a payment bond issued by BHSIC
to WCS, BHSIC is liable for the unpaid sum. BHSIC moves to dismiss, arguing that POST’s
complaint is barred by res judicata because its functionally identical claim against WCS in
arbitration proceedings was “dismissed with prejudice” due to POST’s failure to pay the required
fees. Because that dismissal with prejudice would bar POST from proceeding against WCS in
federal court, the argument goes, so too does it bar POST’s claim against BHSIC. The Court does
not agree: a dismissal by an arbitrator for nonpayment of fees, even a dismissal “with prejudice,”
is not a judgment “on the merits” entitled to claim-preclusive effect in related litigation. However,
in light of the narrow grounds for dismissal presented by BHSIC, gaps in the record before the
Court, and the need for further briefing regarding the best path forward for this suit, the Court will
stay BHSIC’s deadline to answer POST’s amended complaint and permit the parties to file
supplemental submissions.
1
BACKGROUND
This action stems from a dispute between a general contractor, WCS, and one of its
subcontractors, POST. On January 24, 2019, WCS hired POST to perform “certain masonry
restoration and related work” on the renovation of an apartment complex. Am. Compl. [ECF No.
10] ¶¶ 8–9. POST alleges that, in the course of performing this work, WCS—and in particular
Vice President David Jones, see id. ¶ 18—singled POST out for unfair and degrading treatment.
This treatment allegedly included “demand[ing] that POST work evenings and weekends at no
additional cost to WCS,” id. ¶ 25; arbitrarily altering POST’s work assignments, including by
“demanding that POST perform work not shown on the drawings and/or not within the scope of
the POST subcontract,” id. ¶ 19; and “malign[ing], berat[ing] and denigrat[ing] [POST] for not
having sufficient manpower onsite” despite the fact that POST “had the most employees and
subcontractor partners at the site working,” id. ¶ 22. Perhaps most relevant to the present action,
POST also alleges that WCS delayed and/or outright refused to pay POST for its work, either by
“rescind[ing], alter[ing] and modify[ing] POST’s pay applications downwards, even after they
were approved during the ordinary course of dealing,” id. ¶ 20, or by “issu[ing] . . . a pretextual,
bald ‘Notice of Default’ with generic boilerplate averments of default” whenever “a payment was
due and/or POST management would ask WCS to issue payment,” id. ¶ 33. POST, which is
owned, operated, and almost exclusively staffed by African-Americans, id. ¶ 12, also strongly
implies that this treatment was motivated by racial animus, see id. ¶¶ 28–30, 32, 35–36. 1
Ultimately—and, POST alleges, pretextually—WCS terminated POST’s subcontract, id. ¶ 32, and
both POST and WCS now argue that the other is liable for significant damages, see id. ¶¶ 38–39
1
It is unclear if or how this allegation of racial discrimination is relevant to the present suit, which is limited
to BHSIC’s alleged liability for “the unpaid work performed and the unpaid labor, materials and services POST
provided.” Am. Compl. ¶ 39. Although these allegations may help explain why WCS failed to pay POST, it does not
appear that they are essential to establishing liability here.
2
(seeking damages of “at least $305,271.24”); Def.’s Consent Mot. to Stay Pending Arbitration
[ECF No. 9] at 1 (stating that WCS, in turn, claims $744,836.00 from POST “for damages related
to the construction project”).
On October 15, 2020, POST filed this case against BHSIC, asserting a claim for “breach
of payment bond.” Compl. [ECF No. 1] at 8 (cleaned up). POST alleges that BHSIC issued a
payment bond to WCS, Am. Compl. ¶¶ 2, 38–39, in which BHSIC “[bound] itself to pay claimants
having furnished labor and materials to the . . . construction project” in question, id. ¶ 2. As
BHSIC explains in its motion to dismiss:
[A] payment bond . . . guarantees that a claimant . . . who performs work for the
principal on a project[] will be paid for the work it performs. If the principal does
not make the payment, the surety will make the payment in its place. In that regard,
in the context of a construction contract, the surety acts as a backstop to the
principal failing to pay its subcontractors and suppliers amounts actually owed.
BHSIC’s Mem. in Supp. of Its Mot. to Dismiss with Prejudice for Failure to State a Claim Upon
Which Relief Can Be Granted [ECF No. 14] (“Def.’s Mot.”) at 6. Thus, because POST alleges
that the principal (WCS) has failed to pay POST what it owes, POST now seeks funds from the
surety (BHSIC) to fulfill that unpaid obligation. See Am. Compl. ¶ 39 (“Pursuant to the Payment
Bond and other applicable law, BHSIC is liable to POST for the unpaid work performed and the
unpaid labor, materials and services POST provided . . . .”). On February 19, 2021, the Court
stayed this action at the parties’ request in light of pending arbitration proceedings between WCS
and POST, Min. Order, Feb. 19, 2021, in hopes that “[r]esolution of that [arbitration] w[ould]
substantially narrow the issues before this Court,” Def.’s Consent Mot. to Stay Pending Arbitration
at 1.
Suffice it to say, those proceedings did not go smoothly. As relevant here, POST
encountered difficulty in paying the arbitration fees, and after receiving multiple extensions, POST
failed to make the required payment to the American Arbitration Association (“AAA”) by the due
3
date of January 10, 2022. Ex. A to Joint Status Report [ECF No. 13-1] (“Arbitrator’s Order”)
¶¶ 4–6; Def.’s Mot. at 5. After this deadline passed, first POST’s counsel and then its President
informed the arbitrator that POST “did not have the funds to make a deposit at this time,”
Arbitrator’s Order ¶¶ 7–8, and requested that the arbitration—then a little over a month away—be
postponed in order to give POST time to pay on an installment plan, id. The arbitrator denied this
request, noting that such a postponement “would work a hardship on [WCS],” id. ¶ 11, and
concluding that “there is no reason to permit POST to postpone this Arbitration for what may
become an extended period in the hope that payment will be made,” id. ¶ 13. On January 13, 2022,
the arbitrator, relying on her authority to take “measures . . . limiting a party’s ability to assert or
pursue their claim,” see id. ¶ 3 (quoting Am. Arbitration Ass’n, Construction Industry Arbitration
Rules & Mediation Procedures R-59(b) (July 2015) (“AAA Construction Rules”), 2 ordered that
“the counterclaims of [POST] are hereby dismissed with prejudice,” Arbitrator’s Order at 3, but
she also specified that nothing about the order “prohibits or affects POST’s ability to defend
against [WCS’s] claims,” id. ¶ 14. Nonetheless, on the following day WCS voluntarily dismissed
its claim against POST, and the AAA “immediately began the process of closing the case as no
claims remained.” Joint Status Report [ECF No. 13] at 1.
On February 14, 2022, just shy of one year after the Court stayed this litigation, the parties
informed the Court of these developments and expressed their respective positions regarding the
“impact of [the] arbitration on [the] instant matter.” Joint Status Report at 1 (cleaned up). BHSIC
argued that “the arbitrator’s decision to dismiss POST’s claims with prejudice requires the
dismissal of this action as well” under principles of res judicata (specifically, the doctrine of claim
preclusion), id., while POST contended that “this matter may proceed as originally pled” because
2
The AAA Construction Rules are available at https://www.adr.org/sites/default/files/Construction%20
Rules.pdf. In addition, POST attached an excerpt of the Rules, including R-59, as Exhibit A to its opposition brief.
See Pl.’s Ex. A [ECF No. 15-1].
4
“[n]o final arbitration award was received by WCS,” id. at 2. Concluding that one paragraph
apiece in a joint status report was an insufficient basis for determining whether dismissal was
warranted, the Court lifted the stay in this matter and ordered BHSIC to file a motion to dismiss
on the grounds articulated in the status report. Min. Order, Feb. 15, 2022. BHSIC filed its motion
on March 11, see generally Def.’s Mot.; POST timely filed its opposition on April 1, see generally
Opp’n to Def.’s Mot. [ECF No. 15] (“Pl.’s Opp’n”); and BHSIC filed its reply brief on April 15,
see generally BHSIC’s Reply in Supp. of Def.’s Mot. [ECF No. 16] (“Def.’s Reply”). The motion
is now fully briefed and ripe for decision.
LEGAL STANDARD
Under District of Columbia law, “[t]he doctrine of res judicata (claim preclusion) dictates
that a final judgment on the merits of a claim bars relitigation in a subsequent proceeding of the
same claim between the same parties or their privies.” Bell v. First Invs. Servicing Corp., 256
A.3d 246, 253 (D.C. 2021) (cleaned up; citation omitted); accord Jackson v. Off. of the Mayor of
D.C., 911 F.3d 1167, 1170–71 (D.C. Cir. 2018) (“D.C. law establishes that, ‘under the doctrine of
claim preclusion or res judicata, when a valid final judgment has been entered on the merits, the
parties or those in privity with them are barred, in a subsequent proceeding, from relitigating the
same claim . . . .” (cleaned up) (quoting Wash. Med. Ctr., Inc. v. Holle, 573 A.2d 1269, 1280–81
(D.C. 1990))). 3 Although res judicata is an affirmative defense more at home in an answer than a
3
There is no constitutional provision, statute, or binding judicial decision dictating what law governs the
preclusive effect a federal court sitting in diversity must afford a decision in an arbitral proceeding not associated with
a state-court action. Cf. Camp v. Kollen, 567 F. Supp. 2d 170, 172 n.4 (D.D.C. 2008) (treating an unconfirmed
arbitration award as a state-court judgment and applying D.C. preclusion law “because the [arbitral] award was
rendered in the context of a District of Columbia action”). But the Court concludes that the District of Columbia’s
rules of claim preclusion should apply here. To hold that the preclusive effect of an arbitrator’s order might differ
depending on whether a plaintiff sued in state or federal court would fly in the face of the longstanding principle that,
“in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties,
the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the
outcome of a litigation, as it would be if tried in a State court.” Guar. Tr. Co. of N.Y. v. York, 326 U.S. 99, 109
(1945). The D.C. Circuit, relying on similar considerations, arrived at an analogous rule in a different but instructive
context, holding in Semler v. Psychiatric Institute of Washington, D.C., Inc., 575 F.2d 922 (D.C. Cir. 1978), that a
federal court sitting in diversity must put itself in the shoes of the corresponding state court when determining the
5
pre-answer motion to dismiss, a res judicata argument “is properly brought in a pre-answer Rule
12(b)(6) motion when all relevant facts are shown by the court’s own records,” including
documents of which the court takes judicial notice. 4 Perez v. KIPP DC Supporting Corp., Civ. A.
No. 21-929 (RC), 2022 WL 474143, at *3 (D.D.C. Feb. 16, 2022) (cleaned up; citation omitted);
see also Fordham v. Fannie Mae, 49 F. Supp. 3d 77, 83 (D.D.C. 2014) (“It is appropriate to dismiss
a case barred by res judicata under Rule 12(b)(6).” (citing Nader v. Democratic Nat’l Comm., 590
F. Supp. 2d 164, 169 (D.D.C. 2008))).
ANALYSIS
At the outset, there seems to be no dispute that all but one of the prerequisites for claim
preclusion are satisfied here. The parties are sufficiently identical—BHSIC, as WCS’s surety,
may assert any res judicata defense WCS could assert. See, e.g., Westcott Constr. Corp. v.
Firemen’s Fund of N.J., 996 F.2d 14, 17 (1st Cir. 1993) (“Firemen’s, as surety, is only liable to the
extent its principal, Crouse, is liable. Firemen’s benefits just as Crouse does from the application
of res judicata.” (internal citation omitted)); Broder v. Hartford Accident & Indem. Co., 106 F.
Supp. 343, 346 (D.D.C 1952) (holding that order dismissing claim with prejudice of claim against
preclusive effect of a judgment issued by a different federal court sitting in diversity. 575 F.3d at 927–28. Finally, at
least one judge in this District appears to have applied D.C. law in determining the preclusive effect of an arbitration
award issued by the International Court of Arbitration (though without explicit discussion of this choice-of-law
question). See Century Int’l Arms, Ltd. v. Fed. State Unitary Enter. State Corp. “Rosvoorouzhenie”, 172 F. Supp. 2d
79, 84, 95 (D.D.C. 2001) (citing D.C. Court of Appeals cases for the governing legal principles).
Ultimately, however, the distinction between federal and state law in this case is without real difference: “the
D.C. law of claim preclusion does not differ significantly from the federal,” Demisse v. Aldon Mgmt. Corp., Civ. A.
No. 18-2270 (ABJ), 2020 WL 1244931, at *3 (D.D.C. Mar. 16, 2020) (quoting Stanton v. D.C. Court of Appeals, 127
F.3d 72, 78 n.4 (D.C. Cir. 1997)), and courts applying one body of law may rely on decisions applying the other, e.g.,
Univ. of Colorado Health v. Azar, 486 F. Supp. 3d 185, 202–03 & n.11 (D.D.C. 2020).
4
The Court takes judicial notice of the arbitrator’s January 13 order dismissing POST’s counterclaim, which
the parties attached to their February 14, 2022 joint status report. See Castillo v. CleanNet USA, Inc., 358 F. Supp.
3d 912, 944 7 n.20 (N.D. Cal. 2018) (taking judicial notice of document from arbitration proceeding setting forth fee
schedule); Camp, 567 F. Supp. 2d at 173 & n.5 (taking judicial notice of “the arbitration award issued by [the
arbitration panel]” on a motion to dismiss); see also Hemphill v. Kimberly-Clark Corp., 530 F. Supp. 2d 108, 111
(D.D.C. 2008) (“A court may take judicial notice of public records from other proceedings.” (citing Covad Comms.
Co. v. Bell Atl. Corp., 407 F.3d 1220, 1222 (D.C. Cir. 2005))). Judicial notice of this document is particularly
appropriate here, where the arbitration order was submitted to the Court jointly, both parties rely on it, and neither
party has questioned its authenticity.
6
principal “is res judicata not only as to [the principal], the plaintiff in that suit, but also as to his
surety, . . . the defendant herein”). And POST’s claim in this suit is “the same” as its counterclaim
in the arbitration, as the two are “based on the same nucleus of facts.” 5 Perez, 2022 WL 474143,
at *4 (quoting Page v. United States, 729 F.2d 818, 820 (D.C. Cir. 1984)). Finally, the decisions
of an arbitral tribunal are eligible to receive preclusive effect. E.g., Camp, 567 F. Supp. 2d at 173;
Restatement (Second) of Judgments § 84(1) (Am. L. Inst. 1982) (“[A] valid and final award by
arbitration has the same effects under the rules of res judicata . . . as a judgment of a court.”). The
real question is whether the arbitrator’s January 13 order dismissing POST’s counterclaim “with
prejudice” for non-payment of fees is a “final judgment on the merits” entitled to preclusive effect
in this Court. Compare Def.’s Mot. at 7–8 (answering in the affirmative), with Pl.’s Opp’n at 2
(answering in the negative).
BHSIC addresses this point in two sentences. It states, in full: “[A] dismissal with
prejudice satisfies the third prong of the test because a dismissal with prejudice is considered a
decision ‘on the merits.’ The fact that POST’s Counterclaim was dismissed with prejudice, rather
than being resolved after a formal hearing and with the benefit of a formal decision, is irrelevant.”
Def.’s Mot. at 7–8 (first citing Fed. R. Civ. P. 41(b); then citing Luna v. Rambo, 841 F. Supp. 2d
193, 196 (D.D.C. 2012); and then citing Green Aviation Mgmt. Co., LLC v. FAA, 676 F.3d 200,
201 (D.C. Cir. 2012)). At the outset, POST correctly notes that BHSIC “has not produced a single
case . . . [stating] that an arbitration order ‘dismissing with prejudice’ a case before it for non-
payment operates as res judicata.” Pl.’s Opp’n at 2 (emphasis omitted). BHSIC does point to
multiple cases from this District in which a final arbitration award was afforded claim-preclusive
effect. E.g., Fordham, 49 F. Supp. 3d at 79, 83; Camp, 567 F. Supp. 2d at 172–74;
5
Indeed, POST’s counterclaim in arbitration incorporated by reference its complaint in this lawsuit. See
Def.’s Ex. A [ECF No. 14-1] (a copy of POST’s counterclaim in the arbitration). The two claims thus not only arise
from the same nucleus of facts—they are literally identical.
7
Rosvoorouzhenie, 172 F. Supp. 2d at 86–87, 95–97. But while these cases establish that arbitral
decisions are eligible to preclude further litigation in federal court, they do not help the Court
determine whether a dismissal with prejudice on the grounds of non-payment of fees has that same
effect.
Instead, as the Court understands it, BHSIC puts forward a syllogism: a “dismissal with
prejudice” (whether by an arbitrator or a court) is an adjudication “on the merits”; and an
adjudication “on the merits” is entitled to preclusive effect, regardless of the reasoning; therefore,
the arbitrator’s dismissal with prejudice precludes POST from proceeding with this lawsuit. But
this syllogism does not hold up; indeed, it is directly contrary to Supreme Court precedent.
In Semtek International Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001), the Supreme
Court faced the question whether a dismissal with prejudice on statute of limitations grounds in
California precluded a substantively identical suit in Maryland, where the limitations period was
longer. 531 U.S. at 499–500. The respondent contended that Federal Rule of Civil Procedure
41(b) required the application of claim preclusion because, under that rule, the California dismissal
with prejudice “operate[d] as an adjudication upon the merits,” id. at 501 (citation omitted), and
because (as the Court summarized it), “all judgments denominated ‘on the merits’ are entitled to
claim-preclusive effect,” id. In other words, the respondent in Semtek put forward precisely the
same syllogism as BHSIC: because a dismissal with prejudice is an adjudication “on the merits,”
it is automatically entitled to preclusive effect in another court.
In a unanimous opinion, the Supreme Court rejected this argument. Semtek, 531 U.S. at501–03 (“Implicit in [respondent’s] reasoning is the unstated minor premise that all judgments
denominated ‘on the merits’ are entitled to claim-preclusive effect. That premise is not necessarily
valid.”). Instead, the Court expressed its view that, for purposes of claim preclusion, “on the
merits” refers to a decision “that actually ‘passes directly on the substance of a particular claim’
8
before the court.” Id. at 501–02 (cleaned up) (quoting Restatement (Second) of Judgments § 19,
cmt. a (Am L. Inst. 1981)). This understanding has the added benefit of aligning with the ordinary
meaning of the phrase “on the merits.” See On the Merits, Black’s Law Dictionary (11th ed. 2019)
(“(Of a judgment) delivered after the court has heard and evaluated the evidence and the parties’
substantive arguments”); Judgment on the Merits, Black’s Law Dictionary (11th ed. 2019) (“A
judgment based on the evidence rather than on technical or procedural grounds . . . .” (emphasis
added)). While the Court in Semtek acknowledged that the phrase “judgment on the merits” has
also come to refer to “judgments . . . that do not pass upon the substantive merits of a claim,” it
clarified that what entitles a judgment to preclusive effect in other courts is not whether the term
“on the merits” can be applied to it, but instead whether it actually decided the substance of the
plaintiff’s claim. 531 U.S. at 502–03. “In short, it is no longer true that a judgment ‘on the merits’
is necessarily a judgment entitled to claim-preclusive effect.” 6 Id. at 503.
And although the Court also concluded that, at least in the context of Rule 41(b),
“adjudication upon the merits” is a synonym of “dismissal with prejudice” (thereby bolstering
BHSIC’s first premise), Semtek, 531 U.S. at 505; see also Havens v. Mabus, 759 F.3d 91, 98 (D.C.
Cir. 2014) (“In Semtek, the Supreme Court concluded that an ‘adjudication upon the merits’ under
Rule 41(b) is synonymous with a dismissal with prejudice . . . .”), it also clarified that preclusive
effect in other courts does not follow from that appellation. Instead, dismissing a case “with
prejudice” merely means that the dismissed claim cannot be brought again in the dismissing
tribunal. See Semtek, 531 U.S. at 505–06 (“[T]he effect of the ‘adjudication upon the merits’
6
Given the Court’s conclusion that D.C. preclusion law applies here, it is worth clarifying that the Semtek
Court’s comment about the meaning of “on the merits” was an observation regarding the content of state preclusion
law, not a description of the federal common law of claim preclusion. See Semtek, 531 U.S. at 502 (“[The above-
described meaning of ‘on the merits’] is, we think, the meaning intended in those many statements to the effect that a
judgment ‘on the merits’ triggers the doctrine of res judicata or claim preclusion.”). This Court sees no indication that
the Semtek Court’s characterization is inaccurate with respect to D.C. law, particularly given its consonance with the
ordinary meaning of “on the merits.”
9
default provision of Rule 41(b) . . . is simply that, unlike a dismissal ‘without prejudice,’ the
dismissal in the present case barred refiling of the same claim in the [dismissing court].”); Styskal
v. Weld Cnty. Bd. of Cnty. Comm’rs, 365 F.3d 855, 859 (10th Cir. 2004) (“[W]hen a federal court
rules that a dismissal is with prejudice, it is saying only that the claim cannot be refiled in that
court.” (cleaned up; citation omitted)). Such dismissals, though sometimes termed judgments “on
the merits” (including by Rule 41(b)), receive preclusive effect in a different court only when they
address the substance of a party’s claim. Semtek, 531 U.S. at 502. In other words, a dismissal
with prejudice is “undoubtedly a necessary condition, but it is not a sufficient one, for claim-
preclusive effect in other courts.” Id. at 506.
And indeed, the terms of the arbitrator’s order in this case are best understood as barring
POST only from pursuing its counterclaim before the arbitrator. The arbitrator’s decision was
issued pursuant to a rule permitting her to “limit[] a party’s ability to assert or pursue [its] claim,”
Arbitrator’s Order ¶ 3 (quoting AAA Construction Rules R-59(b)), and nothing in the order
suggests that she intended (or was able) to do anything more than prohibit further proceedings in
arbitration. Given Semtek’s understanding of “with prejudice” as barring further proceedings only
in the dismissing tribunal, the arbitrator’s use of that term bolsters the Court’s interpretation of the
effect of her order; as BHSIC itself points out, “[t]here is no reason to believe that arbitration,
which is presided over by attorneys and modeled on the court system, would have some secretive
meaning for the term ‘with prejudice’ or otherwise would treat it differently than the courts,” Def.’s
Reply at 2 n.1.
Putting everything together, then, the arbitrator’s order dismissing POST’s counterclaim
“with prejudice” serves only to bar POST from pursuing its counterclaim before the arbitrator. To
warrant preclusive effect in other tribunals, the decision must have “actually pass[ed] directly on
the substance of a particular claim before the [arbitrator].” Semtek, 531 U.S. at 501–02 (internal
10
quotation marks and citation omitted). And the arbitrator’s January 13 order did not do so. The
arbitrator’s order, despite being a dismissal with prejudice, is not a judgment “on the merits”
warranting preclusive effect in this Court; as a consequence, neither BHSIC nor WCS may raise a
res judicata defense on the basis of the arbitrator’s dismissal of POST’s counterclaim.
The authorities BHSIC cites for its contrary position are not availing. BHSIC first cites
Federal Rule of Civil Procedure 41(b). See Def.’s Mot. at 7. But Rule 41(b) does not prescribe
the preclusive effect arbitration decisions receive in federal court, 7 and if BHSIC means to
analogize the arbitrator’s dismissal to a similar order by a federal judge, the analogy fails. A
judicial dismissal for failure to satisfy a precondition to suit is not ordinarily treated as an
“adjudication on the merits” under Rule 41(b), Costello v. United States, 365 U.S. 265, 285–88
(1961), or, for that matter, under the common law of res judicata, see Cavell v. 2300 Rest., Inc.,
134 A.2d 583, 585 (D.C. 1957) (“An action which is terminated because of a technical defect does
not foreclose further litigation once that defect is removed.”); Restatement (Second) of Judgments
§ 20(2) (Am. L. Inst. 1982). 8 And even if (as here), the hypothetical district judge had specified
that the dismissal was to be “with prejudice,” Semtek makes clear that such a designation does not
automatically entitle that judgment to preclusive effect in another court. See 531 U.S. at 505–06.
BHSIC next cites Luna v. Rambo, 841 F. Supp. 2d 193 (D.D.C. 2012), and (indirectly)
United States v. Lindsey, 47 F.3d 440 (D.C. Cir.), vacated on other grounds sub nom. Robinson v.
United States, 516 U.S. 1023 (1995), for the proposition that “in civil suits, dismissal ‘with
7
Indeed, it does not even prescribe the preclusive effect of federal court decisions. Semtek, 531 U.S. at 503(“Rule 41(b) . . . .would be a highly peculiar context in which to announce a federally prescribed rule on the complex
question of claim preclusion.”).
8
This rule aligns with Semtek’s understanding of the preclusive effect of non-merits dismissals: courts
traditionally resist barring future actions on the basis of dismissals which do not touch the substance of the party’s
claim. So although the AAA Construction Rules do permit the arbitrator to dismiss POST’s counterclaim with
prejudice for non-payment of fees (an exception to the general rule attested in Costello and the Restatement), to
attribute claim-preclusive effect to this non-merits dismissal would fly in the face of ordinary res judicata principles.
11
prejudice’ is said to operate as an adjudication on the merits, is entitled to res judicata effect, and
thus bars further litigation between the parties on the same cause of action.” Def.’s Mot. at 7
(cleaned up) (quoting Luna, 841 F. Supp. 2d at 196). But these cases are inapposite: neither court
afforded preclusive effect to anything resembling a non-substantive dismissal by an arbitrator, nor
did either court have cause to delve into the nuances of preclusion. 9 Instead, this quoted dictum is
better read as (accurately) describing the usual rule: most dismissals with prejudice are indeed
judgments “on the merits” for purposes of claim preclusion. The Court declines to read either
Luna or Lindsey to suggest anything more. 10
Finally, BHSIC cites Green Aviation Management Co., LLC v. FAA, 676 F.3d 200, 201
(D.C. Cir. 2012), for the proposition that “[a] dismissal with prejudice has res judicata effect.” See
Def.’s Mot. at 7–8. But BHSIC has again excerpted a helpful fraction of a sentence from a case
entirely dissimilar to the present situation. Green Aviation addressed whether the defendant in a
proceeding before an FAA Administrative Law Judge was eligible to receive attorney’s fees after
the ALJ dismissed the matter “with prejudice” following the FAA’s withdrawal of its complaint.
See 676 F.3d at 200–01. The D.C. Circuit noted that “the FAA could not re-file a complaint based
on the same set of facts because the dismissal with prejudice has res judicata effect” and held that
Green Aviation’s consequent protection from further litigation constituted “judicial relief,” one of
9
In Luna, Judge Boasberg afforded preclusive effect to a D.C. Superior Court dismissal with prejudice, but
that dismissal was based on a joint motion asking for a dismissal with prejudice and on a settlement agreement in
which parties evinced an intention to “foreclose new litigation.” Luna, 841 F. Supp. 2d at 195 (citation omitted); see
Ex. 10 to Mot. for Summ. J., Luna, Civ. A. No. 09-2331-JEB (D.D.C. Aug. 22, 2011), ECF No. 31-10 (order granting
parties’ consent motion seeking dismissal with prejudice). The facts of Lindsey are even farther afield. That case
involved an appeal of a criminal conviction rather than a civil judgment, and the D.C. Circuit briefly summarized civil
claim preclusion only in the course of explaining why a previous dismissal of a criminal indictment “with prejudice”
did not bar a second prosecution of a defendant under double jeopardy principles. See Lindsey, 47 F.3d at 444.
10
Of course, to the extent Luna or Lindsey does articulate the more sweeping rule BHSIC advocates, such a
rule is contrary to Semtek and is not good law.
12
the requirements for fee eligibility.11 See id. at 205. Green Aviation is not just factually inapt—
rather, that opinion suggests only that a dismissal with prejudice prevents a plaintiff from refiling
in the same tribunal (in that case, before an agency ALJ). This, of course, was the Supreme Court’s
understanding of “with prejudice” in Semtek and the one the Court has adopted here. Thus, Green
Aviation helps BHSIC only if one assumes that a dismissal barring relitigation in the dismissing
tribunal automatically bars relitigation in other tribunals, an assumption conclusively rejected in
Semtek. 12
In sum, the arbitrator’s January 13 order prevents POST from pursuing its claim in
arbitration, but because it did not “pass[] directly on the substance of a particular claim before the
court,” Semtek, 531 U.S. at 501–02 (cleaned up; citation omitted), it is not a “judgment on the
merits” entitled to preclusive effect in federal court. And because res judicata is the only basis for
dismissal presently before the Court, the instant motion to dismiss must be denied. 13 Nonetheless,
11
BHSIC’s confusion here may stem from the ambiguity of the term “res judicata effect.” A dismissal with
prejudice does have a kind of “preclusive effect” (barring a subsequent suit in the same tribunal), and that effect can
be referred to as an example of “res judicata.” So the D.C. Circuit’s statement in Green Aviation is not wrong—a
dismissal with prejudice does have “res judicata effect,” but that effect does not necessarily extend to precluding
litigation in another tribunal.
12
This understanding of “with prejudice” is also present in United States v. Lindsey, though the D.C. Circuit’s
discussion is less instructive given that case’s posture. There, the court explained that the D.C. Superior Court’s
previous dismissal of the indictment against the defendant was made “with prejudice” only in order “to yield
jurisdiction to the federal district court,” where another indictment was then pending. 47 F.3d at 444. “Understood
in its proper context, then, [the previous] dismissal ‘with prejudice’ merely operated to bar reprosecution in the District
of Columbia courts . . . .” Id. (emphasis added).
13
BHSIC also seeks leave to file a motion for sanctions against POST because “there is no good faith basis
for POST asserting a right to continue to litigate these claims against BHSIC.” Def.’s Mot. at 12; accord Def.’s Reply
at 8. Obviously, POST’s position is not frivolous—it is correct. The Court further notes the irony of a party seeking
sanctions based on its opponent’s frivolous argument when its own position is all but foreclosed by Supreme Court
precedent it never cited. To be sure, POST’s opposition brief, containing only three substantive pages and not a single
case citation, is far from stellar advocacy. But, contrary to BHSIC’s apparent view, motions cannot be decided by
counting the cases cited and seeing which party’s tally is greater. See Def.’s Reply at 4 (“It should be beyond dispute
that the seventeen (17) cases cited by BHSIC are more persuasive than the zero (0) cases cited by POST.”).
BHSIC also seeks sanctions on the basis of POST’s failure to engage with the substance of BHSIC’s motion
during the meet-and-confer process. Def.’s Mot. at 12 (“BHSIC has, for months, told POST it believed there was no
good faith basis for continuing this matter after the dismissal with prejudice, and requested any support from POST
for its position. None has been provided.”). Again, the Court cannot endorse this apparent failure to cooperate with
opposing counsel and to work in good faith to avoid potentially unnecessary motions practice. Nonetheless, although
meet-and-confer is a salutary practice with benefits both for the parties and for the Court, there is no obligation to
prepare and divulge a response to a proposed motion to dismiss. Cf. L. Civ. R. 7(m) (imposing a duty to confer with
13
for the reasons explained below, the Court will stay BHSIC’s deadline to answer POST’s amended
complaint and instead permit the parties to make additional submissions regarding the path forward
in this case.
For one, the Court is sympathetic to BHSIC’s objections that permitting POST’s claim to
proceed would “create a significant loophole in arbitration agreements,” Def.’s Mot. at 9 (cleaned
up), and would effectively reward POST’s failure to complete arbitration with “a second bite at
the apple,” id. at 2. But this Court is not the first to confront a situation in which arbitral
proceedings terminate without an award due to non-payment of fees and the non-paying party
seeks to return to federal court to litigate. In Tillman v. Tillman, 825 F.3d 1069 (9th Cir. 2016),
the Ninth Circuit addressed this scenario and concluded that the plaintiff’s case could proceed in
federal court. 825 F.3d at 1075–76. 14 The Tillman court specifically noted, however, that its rule
“does not mean that parties may refuse to arbitrate by choosing not to pay for arbitration,” id. at
1075; instead, the court relied on the district court’s “express[] [finding] that Tillman lacked the
resources to deposit the arbitration fee,” id. Tillman has been followed by several district courts
around the country and, as elaborated by those subsequent courts, the Tillman rule permits a party
whose arbitral claim is dismissed for non-payment of fees to pursue its claims in federal court only
if it attempted to arbitrate in good faith, failed to pay its fees because of an actual inability to pay,
and exercised reasonable diligence both in attempting to obtain funds and in communicating its
difficulties to the arbitrator and the other party. 15
opposition counsel only with respect to “nondispositive motion[s]”). At the motion to dismiss stage, a plaintiff has
the prerogative to put the defendant to his proof, so to speak, and force the defendant to convince a judge that the suit
must be dismissed. Even assuming the truth of BSHIC’s representations, then, the Court does not find sanctions
warranted.
14
Notably, neither the parties nor the Ninth Circuit mentioned the possibility that res judicata might bar the
plaintiff’s claim.
15
See, e.g., Billie v. Coverall N. Am., No. 3:19-CV-00092 (JCH), 2022 WL 807075, at *12 (D. Conn. Mar.
16, 2022) (permitting suit by non-paying party to proceed “[b]ecause [he] genuinely could not afford the arbitrator’s
fees, but made diligent efforts to arbitrate in good faith before the arbitration terminated”); CellInfo, LLC v. Am.
Tower Corp., 506 F. Supp. 3d 61, 67 (D. Mass. 2020) (“[A] party should do more than simply show empty pockets.”);
14
The Court finds the Tillman rule appealing: its stringent standard responds to BHSIC’s
concerns about bad-faith actors evading arbitration agreements by refusing to pay, e.g., Def.’s Mot.
at 11, and it obviates BHSIC’s objection that permitting POST to proceed in federal court is
inconsistent with the federal policy favoring arbitration, id. at 9–10; see Tillman, 825 F.3d at 1075–
76 (explicitly rejecting a similar argument). But at the same time, Tillman is not on all fours with
this case. Whereas much of Tillman’s discussion focused on the Federal Arbitration Act, that
statute is irrelevant where (as in this case) the defendant is a third party who was not before the
arbitrator and does not have an arbitration agreement with the plaintiff. And the difference in the
postures of Tillman and the case at bar complicates the available remedies should the Court
conclude that POST does not satisfy the Tillman rule. Unlike in Tillman, this Court is unable to
compel arbitration under the Federal Arbitration Act (since no arbitration agreement exists), nor
could it dismiss this case for POST’s failure to prosecute or for disobeying a court order to arbitrate
(because no such order was issued). See Tillman, 825 F.3d at 1075–76 (suggesting these three
courses of action “[i]f Tillman had refused to pay for arbitration despite having the capacity to do
so”).
But neither Tillman nor its progeny appear in the parties’ briefing. Given Tillman’s
imperfect fit with this case and the fact that the Court would need to make factual findings in order
to apply the Tillman rule, further input from the parties is required. Accordingly, in their future
submissions, the parties should discuss (1) whether the Court should adopt the Tillman rule in this
case; (2) whether POST satisfies Tillman’s standard; and (3) if the Court adopts the Tillman rule
see also Pre-Paid Legal Servs., Inc. v. Cahill, 786 F.3d 1287, 1294 (10th Cir. 2015) (finding non-paying party in
default in the arbitration proceedings because he “did not show he was unable to afford payment, ask the arbitrators
to modify his payment schedule, or move for an order requiring [the other party] to pay his share for him so that
arbitration could continue”); cf. Weiler v. Marcus & Millichap Real Estate Inv. Servs., Inc., 232 Cal. Rptr. 3d 155,
164 (Cal. Ct. App. 2018) (adopting Tillman rule in context of a California state court procedure and providing for
relief only “when a party who has engaged in arbitration in good faith is unable to afford to continue in such a forum”
and “the court concludes the party’s financial status is not a result of the party’s intentional attempt to avoid
arbitration”).
15
but POST does not satisfy its standard, what action the Court should take and the legal basis
therefor. 16
In addition, the Court is somewhat hamstrung by significant lacunae in the record: neither
the payment bond BHSIC allegedly issued to WCS, see Am. Compl. ¶¶ 2, 38–39, nor the
arbitration agreement between POST and WCS, see Def.’s Mot at 10 (adverting to the existence
of an “arbitration provision in [POST’s] subcontract” with WCS), are presently before the Court.
As a result, the Court is unaware of any language in these documents that might bear on the scope
of POST’s obligation to arbitrate and/or BHSIC’s rights with respect to that obligation. Likewise,
there may be aspects of the law governing the relationship between sureties and principals which
are relevant here, either on their own or in conjunction with the terms of the payment bond or
arbitration agreement. Due to BHSIC’s exclusive focus on res judicata in the present motion, no
such arguments have been presented to the Court.
“[T]here is ‘no totally satisfactory solution’ to a party’s nonpayment of its share of
arbitration fees.” Tillman, 835 F.3d at 1076 (quoting Lifescan, Inc. v. Premier Diabetic Servs.,
Inc., 363 F.3d 1010, 1013 (9th Cir. 2004)). And in the present case (which proves the truth of that
dictum), the Court simply does not have what it needs to reach a resolution. Rather than muddling
ahead on an imperfect record and with limited legal argumentation, then, the Court will put the
ball back in the parties’ court to submit additional filings regarding the appropriate path forward
in this litigation. Those filings could take the form of another motion to dismiss by BHSIC
followed by adversarial briefing, a proposed scheduling order, or something else—what kind of
16
As the Tillman court notes, “‘[d]istrict courts have an obligation and a duty to decide cases properly before
them,’ absent a firm basis for declining to do so.” 825 F.3d at 1075 (quoting S. Cal. Edison Co. v. Lynch, 307 F.3d
794, 805 (9th Cir. 2002)). That obligation is not overcome by objections that permitting an action to proceed would
be unfair or would prejudice the defendant. If BHSIC wishes to seek dismissal again, it must point the Court to a rule
of law requiring such a dismissal and a procedural mechanism by which the Court may order it. Without this kind of
“firm basis” mandating dismissal, POST’s suit would normally be permitted to go forward.
16
submission makes the most sense will be determined by the parties’ discussions, the results of their
research, and their strategic decisions.
CONCLUSION
For the reasons explained above, the arbitrator’s January 13 order dismissing POST’s
counterclaim with prejudice is not a judgment on the merits entitled to claim-preclusive effect in
federal court. Accordingly, the Court will deny BHSIC’s motion to dismiss. But neither the
parties’ narrow briefing nor the limited record before the Court enable it to chart a satisfactory
path forward for this litigation. In order to give the parties additional time to fill the gaps in the
record and to consider anew the continued viability of POST’s claim, the Court will stay BHSIC’s
deadline to answer and permit the parties to make additional filings consistent with the above
discussion by not later than September 9. An accompanying order to that effect will issue on this
date.
/s/
JOHN D. BATES
United States District Judge
Dated: August 5, 2022
17