tanox-inc-formerly-tanox-biosystems-inc-tanox-v-akin-gump ( 2003 )

Affirmed; Opinion of August 27, 2002, Withdrawn; and Opinion on Rehearing and Concurring and Dissenting Opinions on Rehearing

Affirmed; Opinion of August 27, 2002, Withdrawn; and Opinion on Rehearing and Concurring and Dissenting Opinions on Rehearing filed April 24, 2003.

In The

Fourteenth Court of Appeals

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NO. 14-00-00765-CV

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TANOX, INC. f/k/a TANOX BIOSYSTEMS, INC., Appellant

V.

AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., ROBINSON LAW FIRM, WILLIAMS, BIRNBERG & ANDERSEN, L.L.P., MICHAEL J. MADIGAN, MICHAEL J. MUELLER, KENNETH M. ROBINSON, and

GERALD M. BIRNBERG, Appellees

On Appeal from the 11th District Court

Harris County, Texas

Trial Court Cause No. 97-55960

C O N C U R R I N G   O P I N I O N   O N R E H E A R I N G

We fully concur in the court=s judgment and join the Majority Opinion in its disposition of all issues except this one.  This is the opinion of the court as to this issue. 

                        I. Summary Judgment for Individual Lawyers

Tanox claims the trial court erred in granting summary judgment in favor of the Individual Lawyers on the affirmative defenses of res judicata and collateral estoppel.^[1]  To prevail on a motion for summary judgment, the defendant must establish that no material fact issue exists and it is entitled to judgment as a matter of law. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222 (Tex. 1999).  If the defendant moves for summary judgment on an affirmative defense, it has the burden to prove conclusively all the elements of the affirmative defense.  KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999); Velsicol Chem. Corp. v. Winograd, 956 S.W.2d 529, 530 (Tex. 1997).

Res judicata, or claims preclusion, precludes the relitigation of claims that have been finally adjudicated, as well as related matters that should have been litigated in the prior suit.  State & County Mut. Fire Ins. Co. v. Miller, 52 S.W.3d 693, 696 (Tex. 2001). Texas follows the transactional approach.  Barr v. Resolution Trust Corp., 837 S.W.2d 627, 631 (Tex. 1992).  Under that approach, a subsequent suit is barred if it arises out of the same subject matter of the prior suit and which through diligence could have been litigated in the prior suit.  Id.  The elements of res judicata are:  (1) a prior final judgment on the merits by a court of competent jurisdiction; (2) identity of parties or those in privity with them; and (3) a second action based on the same claims as were raised or could have been raised in the first action. Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996). 

Collateral estoppel prevents a party from relitigating an issue that it previously litigated and lost. Quinney Elec., Inc. v. Kondos Entertainment, Inc., 988 S.W.2d 212, 213 (Tex. 1999) (per curiam).  It generally applies when the issue was fully and fairly litigated in the previous action and was essential to the judgment in the previous action.  Id. The elements of collateral estoppel are: (1) the facts sought to be litigated in the second action were fully and fairly litigated in the prior action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action.  Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714, 721 (Tex. 1990).  The issue decided in the prior action must be identical to the issue in the pending action. State & County Mut. Fire Ins. Co., 52 S.W.3d at 696.  Collateral estoppel further requires a final judgment.  Frost Nat=l Bank v. Burge, 29 S.W.3d 580, 595 (Tex. App.CHouston [14th Dist.] 2000, no pet.); Starnes v. Holloway, 779 S.W.2d 86, 93 (Tex. App.CDallas 1989, writ denied).

Tanox contends res judicata and collateral estoppel are inapplicable because there was no final judgment.  On motion for rehearing, the Individual Lawyers urge us to reconsider our initial conclusion that res judicata and collateral estoppel did not apply to the summary judgment hearing.  They argue that the arbitration award in favor of the law firms does have a preclusive effect as to them because it has the same effect as a judgment of a court of last resort.

As we noted in our original opinion on February 16, 2000, the trial court entered an amended interlocutory judgment granting the motion and application to confirm the arbitration award, denying the motion to vacate the award, and ordering that Tanox take nothing on its claims against the law firms.  On March 28, 2000, the trial court granted summary judgment in favor of the Individual Lawyers and entered a final judgment. 

While we acknowledge that it is a close issue, we believe the weight of authority suggests that an arbitration award has preclusive effect even though an appeal of the award is pending. As discussed below, courts have concluded this because an arbitration award has the same effect as a final judgment; in fact, courts have held that an arbitration award can have preclusive effect, even though it is not confirmed and a judgment is not entered.

In Scurlock Oil Co. v. Smithwick, the Texas Supreme Court held that, with an exception not applicable here, a trial court=s judgment is final for purposes of res judicata and collateral estoppel despite a pending appeal.  See 724 S.W.2d 1, 6 (Tex. 1986).^[2]  In addition, our courts have recognized that an arbitration award has the same effect as the judgment of a court of last resort.  Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.CHouston [14th Dist.] 1995, no writ); J.J. Gregory Gourmet Services, Inc. v. Antone=s Import Co., 927 S.W.2d 31 (Tex. App.CHouston [1st Dist.] 1995, writ denied); City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 518 (Tex. App._Houston [1st Dist.] 1994, writ denied); Albert v. Albert, (Tex. Civ. App.CSan Antonio 1965, writ ref=d n.r.e.); see also Restatement (Second) of Judgments, ' 84 (an arbitration award “has the same effects under the rules of res judicata … as a judgment of a court”).  If an arbitration award is the equivalent of a judgment of a court, then, based on Scurlock, an arbitration award, like a judgment, should be given preclusive effect even though an appeal is pending.

In our original opinion we recognized the general principle that arbitration awards can have preclusive effect in subsequent litigation.  See, e.g., Milliken v. Grigson, 986 F. Supp. 426, 431 (S.D. Tex. 1997), aff’d, 158 F.3d 583 (5th Cir. 1998); Drago Daic, Tr. v. Nauru Phosphate Royalties (Tex.), Inc., 27 S.W.3d 695, 701 (Tex. App.CBeaumont 2000, pet. denied).  Moreover, several federal courts have held that confirmation of an arbitration award and the entry of a judgment may not be required to render an award final for purposes of res judicata and collateral estoppel.  See, e.g., Jacobson v. Firemen’s Fund Ins. Co., 111 F.3d 261, 267B68 (2d Cir. 1997) (holding that res judicata and collateral estoppel apply to issues resolved by arbitration when there has been a final determination on the merits, notwithstanding a lack of confirmation of the award); see also Pryner v. Tractor Supply Co., 109 F.3d 354, 361 (7th Cir. 1997) (recognizing that an arbitration award, whether or not confirmed, can be pleaded as res judicata). 

Here, the trial court confirmed the arbitration award and denied Tanox=s motion to vacate.  The trial court also granted the Individual Lawyers summary judgment against Tanox based on the preclusive effect of the arbitration award.  Tanox appealed.  Because the arbitration award was tantamount to a judgment, it did not lose its preclusive effect during appeal. 

As for the argument that the arbitration award did not have preclusive effect because the award was not being used in a subsequent proceeding that was separate from the proceeding in which the arbitration occurred, we agree with the argument the Individual Lawyers present in their motion for rehearing:  the arbitration proceeding was a Aseparate proceeding@ unto itself.  Tanox=s motion to vacate filed in the trial court was, in essence, an appeal of that final award, and the claims against the Individual LawyersCheard in conjunction with the motion to vacate and not a part of the arbitration proceedingsCwere a completely separate proceeding from the arbitration proceeding.  So, technically, the award was being applied to a subsequent, separate hearing.^[3] 

For these reasons, we grant the Individual Lawyers= rehearing on this issue and affirm the summary judgment the trial court entered in their favor.

/s/        Wanda McKee Fowler

Justice

Judgment rendered and Opinions on Rehearing and Concurring and Dissenting Opinions on Rehearing filed April 24, 2003.

Panel consists of Justices Hudson, Fowler, and Edelman.  (Fowler, J., concurring on rehearing on Part VIII, joined by Edelman, J.) (Hudson, J., dissenting to rehearing of Part VIII).

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^[1]  As noted in the majority opinion (see footnote 1 supra), the Individual Lawyers are Michael J. Madigan, Michael J. Mueller, Kenneth M. Robinson, and Gerald M. Birnberg.

^[2]  The Court noted an exception to the rule when Awhat is called an appeal actually consists of a trial de novo.@  724 S.W.2d at 6.

^[3]  Although this additional argument is useful in this case to illuminate how separate the arbitration proceeding and the claims against the Individual Lawyers were, if an arbitration award is final when entered, this additional separation is probably not necessary because the motion to vacate is itself a separate, subsequent proceeding from the arbitration proceeding.