Lemartec Engineering & Construction n/k/a Lemartec Corporation v. Advance Conveying Technologies, LLC ( 2020 )

IN THE SUPREME COURT OF IOWA
No. 18–2183
Filed March 20, 2020
LEMARTEC ENGINEERING & CONSTRUCTION n/k/a LEMARTEC
CORPORATION,
Appellant,
vs.
ADVANCE CONVEYING TECHNOLOGIES, LLC,
Appellee.
Appeal from the Iowa District Court for Monroe County, John
Telleen, Judge.
On interlocutory appeal of a district court order granting summary
judgment in appellee’s favor, appellant argues appellee is not entitled to
claim preclusion or issue preclusion even though the federal court found
in appellee’s favor in the parallel federal case. REVERSED AND
REMANDED WITH DIRECTIONS.
Erik W. Scharf, Miami, Florida, Mark L. Tripp, Andrew C. Johnson,
Thomas M. Boes, and Robert J. Thole of Bradshaw, Fowler, Proctor &
Fairgrave, P.C., Des Moines, and Jason L. Molder, Miami Florida, for
appellant.
Kevin J. Caster and Dana L. Oxley of Shuttleworth & Ingersoll,
P.L.C., Cedar Rapids, for appellee.
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APPEL, Justice.
In this construction law case, we consider the applicability of the
doctrines of claim and issue preclusion to disputes arising out of a contract
between two subcontractors in a construction project.
First, a dispute arose around the fabrication and operation of a salt
conveyor system. In federal litigation, a number of subcontracting parties
litigated questions related to the fabrication of the salt conveyor system
prior to litigation. The federal controversy was eventually reduced to
judgment.
The owner of the facility filed a second lawsuit against
subcontractors involved in the federal litigation in state court. The owner
claimed in the state court litigation that after installation, the salt conveyor
system developed corrosion issues in breach of contract and express and
implied warranties. The parties filed various cross-claims, with one
contractor seeking indemnity from the fabricator of the salt conveyor
system.
After the federal litigation was resolved, a successful subcontractor
in the federal litigation brought a motion for summary judgment in the
state court action, arguing that determinations in the federal litigation
precluded parties from litigating issues related to the salt conveyor system
in state court.
The district court granted summary judgment to the successful
federal subcontractor on claim and issue preclusion grounds. A
disappointed party sought interlocutory appeal, claiming, among other
things, that the successful party in the federal litigation waived its claim
preclusion argument in the state court litigation because it failed to give
notice of intent to pursue claim preclusion in the simultaneously pending
state court litigation. On the question of issue preclusion, the
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disappointed party asserted that it had no reasonable opportunity in
federal court to litigate its indemnity claim related to the alleged corrosion
problems that arose after the salt conveyor equipment was installed and,
therefore, issue preclusion did not apply.
We granted the application for interlocutory review. For the reasons
expressed below, we conclude that the district court erred in granting
summary judgment based on claim and issue preclusion under the facts
of this case.
I. Factual and Procedural Background.
A. Relationship of the Parties. In 2013, HF Chlor-Alkali, LLC
(HFCA) entered into a written agreement with Conve & AVS, Inc. (Conve)
to construct a chlor-alkali manufacturing facility (the Project) in Eddyville,
Iowa. Conve in turn entered into a subcontract with Lemartec Engineering
& Construction n/k/a Lemartec Corporation (Lemartec) to design and
build the physical plant for the Project which included a salt conveyor
system (conveyor system).
Lemartec subcontracted part of the work on the conveyor system to
two other entities. Lemartec, through a purchase order, hired Advance
Conveying Technologies, LLC (ACT) for the design and manufacture of the
conveyor system. Later, Lemartec entered into a subcontract with
Southland Process Group, LLC (SPG) for the installation and erection of
the conveyor system at the Project location.
The conveyor system aspect of the Project did not proceed smoothly.
SPG claimed that there were problems with the component parts supplied
by ACT. Lemartec contacted ACT, claiming deficiencies in ACT’s work.
SPG eventually finished the work but claimed that it incurred significant
additional costs and that Lemartec and ACT were responsible for them.
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B. Filing of Federal Court and State Court Litigation.
1. Overview of federal court litigation. The first litigation arrow in
this case was fired by SPG on October 16, 2015, in the United States
District Court for the Southern District of Iowa. SPG sought to recover its
additional expenses related to the assembly of the conveyor system from
Lemartec and ACT. Lemartec and SPG settled outstanding disputes
between them, leaving ACT’s claim that Lemartec improperly withheld
from ATC the balance owed under the purchase order to be litigated.
2. Overview of state court litigation. The completed Project was
turned over to Conve in June 2015 and later to owner HFCA. HFCA was
dissatisfied with many aspects of the Project. As a result, HFCA launched
the second litigation arrow in this case in state court, naming a number of
defendants including Conve. HFCA alleged, among other things, that the
conveyor system was installed, turned over and put to use, and failed to
perform to specifications. Conve, in turn brought a third-party claim
against Lemartec for indemnification and contribution. Lemartec on
June 5, 2017, brought a third-party claim against ACT.
ACT filed an answer to Lemartec’s third-party claim. In its answer,
ACT did not make reference to the pending federal litigation and did not
raise a res judicata affirmative defense.
Discovery proceeded in the state court litigation. On June 14, 2018,
HFCA served interrogatory responses on the parties. According to the
responses, HFCA claimed that the conveyor system failed to perform in
that the conveyor components and electrical system corroded; the
conveyor belt did not pass approval testing; the bucket system leaked,
corroded, and fell apart; and the equipment ruptured due to the failure to
prevent vibrations.
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3. Federal court judgment. The federal court held a bench trial in
the federal litigation in April 2018. The federal court characterized the
issue to be tried as “whether either of the two remaining parties [Lemartec
and/or ACT] owes money to the other for money earned, but unpaid;
project delays; and for additional work that was required to make the
conveyor system functional.”
On May 21, 2018, the federal district court entered its ruling in favor
of ACT. The federal district court awarded ACT $317,467.07 plus interest.
Lemartec has appealed the case to the United States Court of Appeals for
the Eighth Circuit.
4. Summary judgment in state court proceedings based on preclusive
effect of federal judgment. On August 15, 2018, ACT filed a motion for
summary judgment in the state court proceedings. In its moving papers,
ACT claimed that the judgment in the federal litigation compelled
judgment in its favor in the state court litigation. Lemartec responded, in
part, that res judicata is an affirmative defense that must be raised in an
answer and that ACT had failed to do so. In response, on October 31,
2018, ACT filed a motion to amend its answer to include a res judicata
affirmative defense. Lemartec opposed the motion.
The district court granted ACT’s motion for summary judgment. The
district court rejected Lemartec’s argument that ACT waived its right to
assert preclusion where litigation is simultaneous by failing to provide
Lemartec with notice. On the question of claim preclusion, the district
court found that the claims in the federal and state actions were similar
because they are “premised on the contractual relationship between
Lemartec and ACT.” Turning to issue preclusion, the district court
reasoned that “the issue of indemnity rights arising under the Purchase
Order has been raised and litigated in the prior federal action.” As a result,
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the district court granted summary judgment on both claim preclusion
and issue preclusion. Lemartec appealed. We retained the case for our
consideration.
III. Claim Preclusion.
A. Introduction. This case involves the related concepts of claim
preclusion and issue preclusion.
1. Claim preclusion. Claim preclusion is “based on the principle
that a party may not split or try his claim piecemeal . . . . A party must
litigate all matters growing out of his claim at one time and not in separate
actions.” Iowa Coal Mining Co. v. Monroe County, 555 N.W.2d 418, 441
(Iowa 1996) (quoting B & B Asphalt Co. v. T.S. McShane Co., 242 N.W.2d
279, 286 (Iowa 1976)). “Once an issue has been resolved, there is no
further fact-finding function to be performed.” Colvin v. Story Cty. Bd. of
Review, 653 N.W.2d 345, 349 (Iowa 2002).
2. Issue preclusion. Issue preclusion prevents a party “from
relitigating in a subsequent action issues raised and resolved in [a]
previous action.” Soults Farms, Inc. v. Shafer, 797 N.W.2d 92, 103 (Iowa
1981). “[W]here a particular issue or fact is litigated and decided, the
judgment estops both parties from later litigating the same issue.” Grant
v. Iowa Dep’t of Human Servs., 722 N.W.2d 169, 174 (Iowa 2006). Issue
preclusion applies to both factual and legal issues raised and resolved in
a previous action. See Barker v. Iowa Dep’t of Pub. Safety, 922 N.W.2d
581, 587 (Iowa 2019).
The doctrine “serves a dual purpose: to protect litigants from ‘the
vexation of relitigating identical issues with identical parties’ ” and to
further “the interest of judicial economy and efficiency by preventing
unnecessary litigation.” Winnebago Indus. v. Haverly, 727 N.W.2d 567,
571–72 (Iowa 2006) (quoting Am. Family Mut. Ins. v. Allied Mut. Ins., 562
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N.W.2d 159, 163 (Iowa 1997)). Issue preclusion “prevent[s] the anomalous
situation, so damaging to public faith in the judicial system, of two
authoritative but conflicting answers being given to the very same
question.” Emp’rs Mut. Cas. v. Van Haaften, 815 N.W.2d 17, 22 (Iowa
2012) (quoting Grant, 722 N.W.2d at 178).
In order to successfully invoke issue preclusion,
(1) the issue in the present case must be identical, (2) the issue
must have been raised and litigated in the prior action, (3) the
issue must have been material and relevant to the disposition
of the prior case, and (4) the determination of the issue in the
prior action must have been essential to the resulting
judgment.
Fischer v. City of Sioux City, 654 N.W.2d 544, 547 (Iowa 2002).
B. Position of Lemartec.
1. Waiver of claim preclusion. Lemartec claims that ACT waived its
right to assert claim preclusion in the state litigation. According to
Lemartec, when two cases are pending simultaneously, a litigant must
invoke claim-splitting remedies in the litigation or waive any claim-
splitting relief. In support of its waiver theory, Lemartec cites section 26,
comment a of the Restatement (Second) of Judgments, which provides,
Where the plaintiff is simultaneously maintaining
separate actions based upon parts of the same claim, and in
neither action does the defendant make the objection that
another action is pending based on the same claim, judgment
in one of the actions does not preclude the plaintiff from
proceeding and obtaining judgment in the other action. The
failure of the defendant to object to the splitting of the
plaintiff’s claim is effective as an acquiescence in the splitting
of the claim.
Restatement (Second) of Judgments § 26 cmt. a, at 235 (Am. Law Inst.
1982) [hereinafter Restatement (Second)]. Lemartec asserts that this court
adopted the approach of the comment in Pagel v. Notbohm, 186 N.W.2d
638 (Iowa 1971), and Noel v. Noel, 334 N.W.2d 146 (Iowa 1983). In Pagel,
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the defendant filed answers in two simultaneous actions without taking
any steps to consolidate or object to claim splitting. 186 N.W.2d at 639.
In Noel, a son brought a district court action against his father seeking to
recoup improvements to a leasehold, and, after his father’s death, brought
a claim in probate related to the same subject matter. 334 N.W.2d at 147.
The executor answered in both actions but did not note the pendency of
the other action or ask for consolidation of the cases. Id. After judgment
was entered in the district court action, the executor sought to preclude
the probate litigation. Id. The Noel court rejected claim preclusion, noting
that “decisions dealing with this situation hold that a party waives claim
preclusion by failing to interpose it prior to judgment in the first case.” Id.
at 149.
Lemartec recognized that the district court allowed ACT to amend
its pleading to assert res judicata arising from the federal judgment after
ACT filed its motion for summary judgment in this case. Lemartec asserts
that res judicata is an affirmative defense “to be asserted by answer and
cannot be raised by a motion to dismiss.” Bertran v. Glens Falls Ins., 232
N.W.2d 527, 532 (Iowa 1975) (quoting Bickford v. Am. Interinsurance Exch.,
222 N.W.2d 450, 454 (Iowa 1974)). Lemartec asserts that by waiting until
a judgment was entered in the federal litigation, ACT foreclosed Lemartec’s
ability to weigh its options in the federal litigation to ensure its indemnity
claims were not preempted. Clements v. Airport Auth., 69 F.3d 321, 329
(9th Cir. 1995). Lemartec urges that the burden is on the defendant to
give timely notice of an objection to claim splitting where simultaneous
litigation is pending. Brown v. Lockwood, 432 N.Y.S.2d 186, 199 (App.
Div. 1980).
2. Claims arising after filing of first complaint. Lemartec asserts that
claims in the state court litigation arose after the filing of the complaint in
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the federal law suit. Based on this factual premise, Lemartec claims Iowa
should adopt a bright-line rule that when claims arise after the filing of
the first complaint, the doctrine of claim preclusion should not apply.
Lemartec contends that the approach that claim preclusion does not apply
to foreclose litigation in another forum when the claims arise after the filing
of the first action has been adopted by courts in California, Minnesota,
and at least seven federal circuits. 1 Lemartec recognizes that Iowa has not
yet adopted the rule but argues that it is consistent with Iowa law and
should be adopted now.
In seeking to apply the after-filing, bright-line rule, Lemartec
emphasizes that it seeks to enforce indemnity claims in the state and
federal litigation. Lemartec observes that indemnity claims do not accrue
until the indemnitee’s liability is fixed. Lemartec points out that the
federal litigation claim dealt with SPG’s claim that the performance of
Lemartec and ACT delayed SPG’s work and increased its expenses in
installing the conveyor system. In contrast, in the state court litigation,
HFCA asserted that, as installed, postcompletion, the conveyor system was
defective. The federal court claims and the state court claims, according
to Lemartec, did not arise at the same time. See Minch Family LLLP v.
Buffalo-Red River Watershed Dist., 628 F.3d 960, 966–67 (8th Cir. 2010).
3. Claims materially distinguishable. Lemartec contends that ACT
cannot assert claim preclusion because the claims in the federal and state
litigation are materially distinguishable. Lemartec reprises its refrain: the
1See Howard v. City of Coos Bay, 871 F.3d 1032, 1040 (9th Cir. 2017) (stating
California rule); Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905, 919 (2d Cir. 2010);
Smith v. Potter, 513 F.3d 781, 783 (7th Cir. 2008); Rawe v. Liberty Mut. Fire Ins., 462 F.3d
521, 529–30 (6th Cir. 2006); Mitchell v. City of Moore, 218 F.3d 1190, 1202 (10th Cir.
2000); Manning v. City of Auburn, 953 F.2d 1355, 1360 (11th Cir. 1992); Mach v. Wells
Concrete Prods. Co., 866 N.W.2d 921, 925 (Minn. 2015); cf. Young-Henderson v.
Spartanburg Area Mental Health Ctr., 945 F.2d 770, 774 (4th Cir. 1991) (allowing for the
possibility of claims that could not be raised at the time of initial filing).
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federal suit involved a claim for indemnity based on SPG’s precompletion
allegations, while the state court litigation involves a claim for indemnity
based upon HFCA’s and Conve’s postcompletion allegations.
Lemartec argues that a comparison of the federal district court’s
ruling and the pleadings in the state court litigation proves the point. In
its ruling, the federal district court noted that “[o]ther parties, and in large
part Lemartec itself, caused the delays that Lemartec failed to prove were
caused by ACT.” Further, the federal district court observed that “the
evidence is that ACT delivered product within a reasonable amount of time
from Lemartec’s implementation of the fast-track delivery system.” In
contrast, Lemartec argues the state court litigation focuses on HFCA’s
allegations that the conveyor system, as installed, failed to meet
expectations.
Lemartec cites Iowa Coal Mining Co. for the general proposition that
“if . . . the two actions rest upon different states of facts, or if different
proofs would be required to sustain the two actions, a judgment in one is
no bar to the maintenance of the other.” 555 N.W.2d at 441 (quoting
Phoenix Fin. Corp. v. Iowa-Wis. Bridge Co., 237 Iowa 165, 176, 20 N.W.2d
457, 462 (1945)). Lemartec notes, but does not address, potential contrary
authority in Villarreal v. United Fire & Casualty Co., 873 N.W.2d 714, 729
(2016).
Finally, Lemartec challenges the assertion of the state district court
that “Lemartec cannot maintain an action on its contractual rights under
the Purchase Order after previously bringing suit on an alleged breach of
the same agreement.” Lemartec argues that the state district court
overlooked the distinction between a “total breach” of contract, where the
plaintiff sues for the entire value of the contract based on total breach, and
a partial breach, where there can be multiple breaches of contract. In
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support of its argument, Lemartec cites section 26, comment g of the
Restatement (Second) of Judgments, which states,
A judgment in an action for breach of contract does not
normally preclude the plaintiff from thereafter maintaining an
action for breaches of the same contract that consist of failure
to render performance due after commencement of the first
action.
Restatement (Second) §26 cmt. g, at 240. Thus, according to Lemartec,
the fact that the claims in the federal court and the state court litigations
both relate to the same purchase order is not dispositive if separate issues
are raised.
C. Position of ACT.
1. Transactional approach. Whether to apply claim preclusion
turns, in part, on the definition of a “claim.” ACT asserts that we have
applied “the transactional approach of the Restatement.” Under the
Restatement (Second) of Judgments, “the claim extinguished includes all
rights of the plaintiff to remedies against the defendant with respect to all
or any part of the transaction, or series of connected transactions, out of
which the action arose.” Restatement (Second) § 24, at 196. As seen from
the above passage, the question of claim turns upon the scope of the
“transaction.” ACT notes that Lemartec in its pleading in both cases, pled,
nearly verbatim, breach of contract, breach of implied warranty of
workmanlike construction, breach of implied warranty of fitness for a
particular purpose, and breach of express warranty. ACT further claims
that the only transaction in both cases that gives rise to the claims is the
purchase order wherein ACT agreed to “perform and complete all Work
required for the proper execution and completion of all Salt Conveyor
Systems Supply work for the Project.”
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In its analysis of the scope of a transaction, ACT recognizes that the
claims of Lemartec are indemnity claims. But, according to ACT, once a
first action seeking indemnification is launched, the party seeking
indemnify must pursue all theories of recovery at that time where there is
no claim that the new theories arose subsequent to resolution of the first
indemnity claim. Arnevik v. Univ. of Minn. Bd. of Regents, 642 N.W.2d 315,
320 (Iowa 2002) (“[O]nce [the employee] started down the path in the first
action seeking indemnification from [her employer], she was required to
bring all theories of recovery at that time.”) Further, because Lemartec
amended its complaint in the federal litigation to include the underlying
claims of breach of contract, breach of warranty, etc., Lemartec was
required to bring all claims arising out of the transaction.
2. Not “materially different.” ACT next addresses the question of
whether the indemnity claim in the state litigation is “materially different”
from the claims raised and litigated in the federal court litigation. ACT
notes that perfect identity of evidence is not required to assert claim
preclusion. See Villarreal, 873 N.W.2d at 729; Restatement (Second) § 25,
at 209–10. While ACT recognizes that Lemartec relies on a “later events”
theory to avoid preclusion, ACT characterized the “later events” theory as
inapposite because the claims in both cases arise out of the same
obligations owed by ACT.
Further, ACT asserts that Lemartec in the federal litigation alleged
a significant number of defects. Lemartec claimed in the federal litigation
that the ACT’s deficiencies “included, but were not limited to”
[d]efective handrail on transfer tower, defective stairs on
transfer tower, defective hopper rail car unload pit, defective
rail car uploading pit, defective skirt boards, defective tripper
car, defective festoon, defective gear box and head pully,
defective pan feeder rail car pit, defective stops for tripper car,
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defective collector chute to bucket elevator, and defective
catwalk between transfer tower and salt building.
Further, ACT notes that Lemartec asserted, “ACT’s numerous deficiencies
in designing and manufacturing the Salt Conveyer in accordance with the
Project specification drawings shows that ACT failed to follow specific
plans, which supports Lemartec’s implied contractual indemnity claim.”
But, ACT asserts that in the federal litigation it proved that the conveyor
system was 100% operational after it was installed.
In response to Lemartec’s argument that the case involves multiple
partial breaches under section 26, comment g of the Restatement (Second)
Judgments, ACT asserts that the notion of a partial breach applies only to
a contract involving ongoing obligations such as an employment contract.
ACT argues that in this case, ACT’s performance under the purchase order
was completed by June 2015.
3. Timing of Lemartec’s claims. ACT addresses Lemartec’s assertion
that the state court litigation claims arose after the claims litigated in
federal court. According to ACT, Lemartec did not limit its defect claims
in the federal litigation to the installation or precompletion period. In
particular, ACT notes that Lemartec argued, in order to avoid summary
judgment, that “ACT shall Guarantee the work for 18 months after delivery
of Equipment or 12 months after Start-up, whichever is sooner.” In
response, ACT argues that it put on evidence at the federal trial that the
equipment was fully operational after it was installed. So ACT claims that
in the federal litigation, Lemartec did raise claims related to the operation
of the conveyor system.
In the alternative, ACT challenges Lemartec’s assertion that the
Lemartec’s state court indemnity claims arose after the indemnity claims
asserted in federal court. ACT notes that while the litigation between ACT
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and Lemartec began as indemnity and contribution claims, Lemartec
amended its pleadings in both forums in October 2017 to include nearly
identical claims for breach of contract, breach of implied warranties, and
breach of express warranties. ACT presses its point by noting that
Lemartec’s amended pleading in state court was filed one day prior to its
similar amended pleading in federal court. ACT notes that the conveyor
system was completed in May 2015 and turned over to Conve in June
2015, well before the October 2017 date.
ACT recognizes that serial breaches of contract may occur. Such
successive contract claims arise, according to ACT, only where the
contracting party fails to render performance due after the beginning of
the first action. Here, according to ACT, it had no performance due after
the delivery of the conveyor system to Conve in June 2015.
ACT further challenges Lemartec’s effort to rely on the June 2018
date of the discovery responses served by HFCA to support its claim that
the state court claims arose after the filing of the federal litigation.
According to ACT, it is not the date of discovery that matters but instead
the date when the act or event giving rise to the claim occurred.
4. Rejection of bright-line rule. ACT argues that Iowa courts should
reject Lemartec’s invitation to adopt a bright-line rule that claims arising
after the filing of the first action are not subject to preclusion in later
litigation, at least where application of the rule would be inconsistent with
the transactional approach. In support of its argument, ACT cites Pavone
v. Kirk, 807 N.W.2d 828, 830–31 (Iowa 2011). In Pavone, a party
successful in a first contract action sought to bring a second contract
action alleging a breach similar to the first that occurred after the first
litigation was commenced. Id. ACT argues Pavone is determinative here.
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5. No waiver. ACT argues that it did not waive or acquiesce in claim
splitting. ACT asserts that in Pagel, the father brought part of his claim
for his son’s wrongful death in one action and the other part for his
personal injuries and property in another. Similarly, according to ACT, in
Noel, the son brought part of his claim for a declaration of rights in one
action and the other part for damages in another.
Here, according to ACT, Lemartec has brought the exact same claim
in both cases. As a result, ACT claims there was no claim splitting under
section 26, comment a of the Restatement (Second) of Judgments, to
which ACT needed to object.
Further, ACT claims it did, in fact, object to the expansion of claims
by Lemartec through its amendment in the federal litigation. Further, in
the state court action, ACT sought to amend its answer to assert a
res judicata defense early in the litigation. And, according to ACT, the fact
that Lemartec in its settlement with SPG in the federal case included a
release of all claims between SPG and Lemartec in the state court shows
that Lemartec was aware of the relationship between the two cases.
Finally, ACT notes that the waiver exception to claim preclusion does not
apply to issue preclusion. See Noel, 334 N.W.2d at 149–50.
D. Discussion. On the issue of claim preclusion, we have several
potential arguments to consider. We conclude, however, that our
approach to simultaneous litigation embraced by section 26, comment a
of the Restatement (Second) of Judgments, and adopted in Noel and Pagel,
is dispositive on the claim preclusion issue.
Noel and Pagel deal with the narrow question of how to treat
simultaneous claims in different forums that arguably deal with
overlapping disputes. The approach in these cases is a pragmatic one,
based on the notion that in the unusual context of simultaneous litigation
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involving the same subject matter, the courts and the parties are entitled
to notice and an opportunity to develop a framework for the resolution of
the overlapping issues.
Here, the federal litigation proceeded to judgment without any
suggestion from ACT that claim preclusion might be involved. The burden
is on ACT to give a timely notice under Noel and Pagel that claim preclusion
might be implicated in light of the simultaneously ending state court
litigation. Clements, 69 F.3d at 329.
A notice under Noel and Pagel is hardly timely when made after a
judgment has been entered in the first litigation. Indeed, as stated in Noel,
the executor did not raise potential preclusion until a judgment was
obtained in the first action and then tried to interpose the judgment to
preclude the second action. 334 N.W.2d at 148–49. The Noel court
rejected this approach, noting that “decisions dealing with this situation
hold that a party waives claim preclusion by failing to interpose it prior to
judgment in the first case.” Id. at 149. Further, the Noel court stated that
the executor in that case “waived claim preclusion by failing to interpose
it appropriately before judgment in the declaratory action.” Id.Pagel is consistent with the approach in Noel. In Pagel, the court
considered a scenario in which a plaintiff instituted two separate actions
that gave rise to potential claim splitting. The question before the court in
Pagel was whether
a defendant can lie back without pleading splitting, let his
opponent proceed to judgment in the first action, and then
amend his answer in the second action to aver that the
plaintiff is foreclosed by splitting from prosecuting the second
action.
186 N.W.2d at 640. The Pagel court noted that “[b]y waiting to interpose
splitting by amendment until after judgment in the first action, defendants
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placed plaintiff in an inextricable position.” Id. at 641. The Pagel court
found the claim-splitting issue waived. Id.As a result, we hold under Noel and Pagel that ACT has waived its
claim-preclusion argument. Because of our resolution of the issue based
upon waiver under Noel and Pagel, we do not reach the other issues related
to claim preclusion raised in this case.
IV. Issue Preclusion.
A. Position of Lemartec. Lemartec asserts that the state district
court ruling took too broad an approach to what the “issue” was in the
federal lawsuit. According to Lemartec, the district court in granting ACT’s
motion for summary judgment construed the federal judgment as
precluding categorically any indemnity claims Lemartec might have based
upon the purchase order with ACT.
Lemartec argues that the federal judgment is fact bound. According
to Lemartec, the issue in the federal litigation was whether Lemartec was
entitled to receive indemnification for SPG’s claims for alleged
precompletion delays and deficiencies. In support of its argument, it cites
the federal court ruling stating that the issues remaining for trial were
“whether either of the two remaining parties [Lemartec and/or ACT] owes
money to the other for money earned but unpaid; project delays; and for
additional work that was required to make the conveyor system
functional.” That, according to Lemartec, is a narrow issue, based on
SPG’s claims, and not a broad categorical question regarding whether
Lemartec is entitled to indemnity from ACT for other alleged wrongs.
Lemartec notes that in the state court litigation the alleged defects
did not relate to the timing, fabrication, and delivery of the conveyor’s
component parts. Further, there was no suggestion in the federal litigation
that latent or unknown future defects would be foreclosed by a judgment.
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Lemartec additionally observes that no evidence on the issue of problems
in the operation of the conveyor system was presented in the federal court
litigation, and therefore the question was not “actually litigated” in that
forum. Haverly, 727 N.W.2d at 572.
Further, Lemartec asserts that indemnification was not raised in the
federal litigation because the right to indemnification does not fully mature
until the indemnitee’s liability is fixed by settlement or judgment. See
Becker v. Cent. States Health & Life Co. of Omaha, 431 N.W.2d 354, 357
(Iowa 1988), overruled in part on other grounds by Johnston Equip. Corp. of
Iowa v. Indus. Indem., 489 N.W.2d 13, 17 (Iowa 1992); Evjen v. Brooks,
372 N.W.2d 494, 496 (Iowa 1985). According to Lemartec, “[a] question
cannot be held to have been arisen and adjudged before an issue on the
subject could possibly have arisen.” Third Nat’l Bank of Louisville v. Stone,
174 U.S. 432, 434, 19 S. Ct. 759, 760 (1899).
B. Position of ACT.
1. Scope of issue litigated in federal litigation. ACT claims that
determining the scope of the issue litigated in the prior action is critical to
application of issue preclusion. In making that assessment, ACT
emphasizes that the fact that the opposing party raises new arguments
and presents different evidence is not determinative. See Soults Farms,
797 N.W.2d at 104–05.
An important part of the issue preclusion analysis is identification
of the elements of the claims in the prior action. In the federal litigation,
ACT asserts that in order to prove its claim, ACT was required to show the
terms and conditions of the contract and that it performed all the terms
and conditions required under the contract. Royal Indem. Co. v. Factory
Mut. Ins., 786 N.W.2d 839, 846 (Iowa 2010). The federal court, according
to ACT, necessarily found that it had performed all the terms and
19
conditions of the contract and that Lemartec had no “legal excuse” to
withhold payment.
ACT asserts that in the federal action, the question of whether ACT
had a duty to indemnify Lemartec was litigated and decided. In resisting
summary judgment in the federal litigation, Lemartec identified provisions
of its contract with ACT that gave rise to an indemnification claim. ACT
points out that Lemartec amended its counterclaims in the federal
litigation to include breach of contract, breach of implied warranty of
fitness for a particular purpose, and breach of express warranty. In the
implied warranty claim, ACT notes that Lemartec identified the litigated
issues as whether ACT breached the independent duty “to provide the
conveying system components in accordance with the construction
drawings and specifications.” With respect to the indemnity claim, ACT
observes that Lemartec characterized the issue as whether “ACT breached
the implied warranty of merchantability and implied warranty of fitness
for a particular purpose.” ACT argues that “Lemartec cannot prevail on
its indemnity action because of the crucial issue of whether ACT breached
the duties it owed under the Purchase Order has already been decided
against Lemartec,” and contends therefore that the issue of indemnity has
been litigated and determined and is binding on Lemartec in the state
litigation.
2. Precompletion vs. postcompletion defects. ACT challenges
Lemartec’s characterization of the federal litigation as involving
precompletion defects and the state court as involving postcompletion
defects. It notes, for instance, that some precompletion claims were raised
in the state litigation.
ACT further notes that the alleged defects in both cases are based
on the same work performed by ACT pursuant to the same purchase order.
20
According to ACT, the fact that HFCA filed its discovery responses in the
state litigation identifying specific defects in June 2018 does not change
the fact that ACT had performed all its obligations under the purchase
order when the federal litigation was pending.
3. Maturity of indemnity claim. On the issue of when an indemnity
claim “fully matures,” ACT asserts that while the right to enforce a claim
of indemnity does not “accrue” until judgment against the indemnitee, the
claim “comes into being . . . the instant” the acts to support it occur. Evjen,
372 N.W.2d at 496–97 (quoting 18 Am. Jur. 2d Contributions § 46 (1965)).
In any event, as long as the issue of indemnity was raised in the first
litigation, ACT argues that issue preclusion applies if the issues “in the
second case involve[] issue[s] decided in the first case.”
4. Waiver. ACT argues that throughout Lemartec’s brief to this
court, Lemartec only asserts that its indemnity claims in the two actions
involve different issues. But ACT asserts that Lemartec did not argue that
its other state court claims––for breach of contract and breach of various
warranties––were not the same as the claims in federal litigation. As a
result, ACT argues that Lemartec has waived all claims in the state court
litigation except the indemnity claim.
ACT then asks what the waiver of underlying substantive issues has
to do with its unwaived indemnity claim. According to ACT, the state
district court will be bound by the federal court determination that the
other substantive claims are without merit. As a result, ACT suggests that
there is no remaining substantive basis for Lemartec’s indemnity claim.
C. Discussion. A party asserting issue preclusion must establish
four elements:
(1) the issue in the present case must be identical, (2) the issue
must have been raised and litigated in the prior action, (3) the
issue must have been material and relevant to the disposition
21
of the prior case, and (4) the determination of the issue in the
prior action must have been essential to the resulting
judgment.
Soults Farms, Inc., 797 N.W.2d at 104 (quoting Fischer, 654 N.W.2d at 547(Iowa 2002).
We think the issue-preclusion question centers on a determination
of the proper level of generality to be applied in determining the scope of
an “issue” for preclusion purposes. ACT argues that the scope of the issue
in the federal litigation should be broadly and categorically construed to
include all contract-type issues arising out of the purchase order between
ACT and Lemartec in this case. Because of ACT’s categorical approach,
its focuses on the similarity of the pleadings in the state and federal
litigation. And, there is no doubt that Lemartec’s pleadings in both cases
are similar.
But there are certainly factual differences. As pointed out by
Lemartec, the claims for which it seeks indemnity arise as a result of
different factual scenarios. SPG’s claims arose based on preinstallation
problems, while HFCA’s claims arose postinstallation and were based
upon the alleged corrosion of the installed conveyor belt system. The main
difference between ACT and Lemartec is whether the issue in this case is
a categorical one relating to all claims under the purchase order or a more
granular one based on the facts that give rise the dispute.
We agree with Lemartec. In the federal court litigation, Judge Wolle
noted,
Pared down to essentials, the remaining issues for trial were
whether [Lemartec and/or ACT] owes money to the other for
money earned but unpaid; project delays; and for additional
work that was required to make the conveyor system
functional.
22
In the state court litigation, HFCA seeks recovery for claims that arose
from postinstallation defects.
While it is true that the pleadings of Lemartec in both proceedings
were quite similar, Lemartec correctly points out that Iowa is a notice
pleading state and, as a result, the pleadings themselves may be so general
that they do not define the scope of the issues being litigated in the action.
Based on our examination of the record, the issue of corrosion in the
installed conveyor belt system was not “actually litigated” in the federal
litigation as generally required for application of issue preclusion. Haverly,
727 N.W.2d at 572. The issues that were actually litigated in the federal
proceeding arose from SPG’s claim that it lost money because of additional
expenses that arose prior to the installation of the conveyor belt.
We do not think there is a generally applicable rule that there can
be only one litigated dispute under a contract. A contract may impose a
number of obligations on a contracting party, and breaches of the contract
may occur at different times and under different circumstances. For
example, in Storey Construction, Inc. v. Hanks, 224 P.3d 468, 471 (Idaho
2009), an owner sued a contractor upon completion of a home and lost in
arbitration. Subsequently, the owner discovered water entering the house
arising from other defects. Id. The Hanks court noted, “There can be more
than one construction defect in a construction project. Under the parties’
contract, there can also be more than one claim ‘arising out of or related
to’ the parties’ construction contract.” Id. at 475.
We conclude similar reasoning is applicable here. The fact that
there has been prior litigation based on breach of contract does not mean
that there can be no subsequent action where the underlying claims arose
23
at a different time based on different breaches. As a result, the district
court erred in granting summary judgment based on issue preclusion. 2
V. Conclusion.
For the above reasons, we conclude that the order of the district
court granting ACT summary judgment should be reversed and the case
remanded to the district court for further proceedings.
REVERSED AND REMANDED WITH DIRECTIONS.
All justices concur except Oxley, J., who takes no part.
2ACT suggests that Lemartec waived dismissal of some of claims III–VI by arguing
on appeal only that the indemnity claims involve separate issues. All of Lemartec’s
claims, however, fall under the umbrella of indemnity claims, regardless of the underlying
legal theory. The district court referred to indemnity counts in this case. We conclude
that there is no waiver problem here.