Agrolinz Inc v. Micro Flo Co

RECOMMENDED FOR FULL-TEXT PUBLICATION 8 Agrolinz, Inc., et al. v. Micro Flo Co. No. 98-6015 Pursuant to Sixth Circuit Rule 206 ELECTRONIC CITATION: 2000 FED App. 0030P (6th Cir.) File Name: 00a0030p.06 trial court err in concluding that the parties did not intend to preclude Micro Flo from pursuing its outstanding reserved claims against Agrolinz in arbitration. Accordingly, the trial court’s disposition is affirmed for the reasons set forth UNITED STATES COURT OF APPEALS herein. FOR THE SIXTH CIRCUIT _________________

;  AGROLINZ, INC. and  AGROLINZ MELAMIN,  G.M.B.H.,  No. 98-6015 Plaintiffs-Appellants,  > v.    Defendant-Appellee.  MICRO FLO COMPANY,  1

Appeal from the United States District Court for the Western District of Tennessee at Memphis. No. 97-02566—Bernice B. Donald, District Judge. Argued: September 22, 1999 Decided and Filed: January 20, 2000 Before: KRUPANSKY and NORRIS,* Circuit Judges; GWIN, District Judge.

* The Honorable James S. Gwin, United States District Judge for the Northern District of Ohio sitting by designation.

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_________________ conclusion that in the event that there has been no adjudication on the merits of a contested issue, the “extent to COUNSEL which a judgment or decree entered by consent is conclusive in a subsequent action should be governed by the intention of ARGUED: Robert A. McLean, FARRIS, MATHEWS, the parties … rather than a mechanical application of the BRANAN & HELLEN, Memphis, Tennessee, for Appellants. general rules governing the scope of estoppel by judgment Leo M. Bearman, Jr., BAKER, DONELSON, BEARMAN & [claim preclusion].” Long v. Kirby-Smith, 292 S.W.2d 216, CALDWELL, Memphis, Tennessee, for Appellee. 220 (Tenn. Ct. App. 1956); see also Apstein v. Tower ON BRIEF: Robert A. McLean, FARRIS, MATHEWS, Investments of Miami, Inc., 544 So. 2d 1120, 122 (Fla. Dist. BRANAN & HELLEN, Memphis, Tennessee, for Appellants. Ct. App. 1989), the Florida court concluded that the intent of Leo M. Bearman, Jr., Jennifer R. Keown, BAKER, the settling parties as to what was included in the settlement DONELSON, BEARMAN & CALDWELL, Memphis, controls the effect of a consent dismissal with prejudice. Tennessee, for Appellee. In both Florida and Tennessee the party asserting claim _________________ preclusion has the burden of proving the elements of that legal principle. The instant case requires Agrolinz to prove OPINION that the issues embraced by Micro Flo’s Tennessee arbitration _________________ action had been determined on the merits by a previous judicial disposition and/or that it had been the intention of the KRUPANSKY, Circuit Judge. Plaintiff-Appellants adverse parties to include those issues in the dismissal with Agrolinz, Inc. and Agrolinz Melamin, G.m.b.H., hereafter prejudice articulated in the Florida consent decree. collectively referred to as “Agrolinz,” challenge the denial of their motion for summary judgment and the grant thereof to Agrolinz has not carried its burden of proving either Defendant-Appellee, the Micro Flo Company, requiring requirement necessary to support its “issue preclusion” Agrolinz to defend itself in arbitration against breach of argument. To the contrary, the evidence developed in the contract and other claims made by Micro Flo. record weighs heavily in favor of Micro Flo. It is apparent that Micro Flo, from the very outset of negotiations with On September 8, 1992, Agrolinz, Inc. and Agrolinz plaintiffs to settle the Florida Cases, intended to seek Melamin, G.m.b.H. (Agrolinz) and Micro Flo Co. (Micro Flo) arbitration of its claims against Agrolinz for the cost of entered into a Manufacturing and Distribution Agreement copper sulfate and other raw materials remaining in its (Agreement) under the terms of which Agrolinz granted inventories, together with the cost of its stocked Cuproxat, in Micro Flo exclusive rights to manufacture and distribute its addition to shipping, storage and interest costs. Agrolinz, its proprietary agricultural fungicide “Cuproxat” throughout the insurance carriers and all participating legal counsel were United States in consideration for Micro Flo’s commitment to aware of Micro Flo’s intention to pursue arbitration for the annually purchase assigned minimum quantities of copper recovery of its described damages. In the context of the sulfate, the basic active ingredient of Cuproxat, from instant case this appellate review is in accord with the district Agrolinz. court and finds that it did not err in concluding that Micro The Agreement also incorporated an arbitration provision Flo’s claims which are the subject of the Tennessee that referenced the Commercial Rules of the American arbitration had not been adjudicated on their merits by the Florida court that journalized the consent decree, nor did the

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Micro Flo had breached its contract with Agrolinz by failing Arbitration Association. Specifically, Section 20 of the to purchase the contractually-agreed minimum quantities of Agreement, entitled “Arbitration,” provided in pertinent part: copper sulfate and by failing to promote Cuproxat in the United States for the duration of its five-year exclusive Any controversy or claim between the parties hereto contract. arising, directly or indirectly, out of or relating to the present Agreement or transactions pursuant thereto, or The parties filed cross-motions for summary judgment. On the breach thereof, including tort or other non-contractual June 22, 1998, the district court granted summary judgment type claims, shall be finally settled by arbitration in in favor of Micro Flo. accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in On appeal, Agrolinz has urged that under Florida law an effect, and any judgment upon the award rendered by the agreed dismissal “with prejudice” is a judgment “on the arbitrator may be entered in any court having jurisdiction merits” so as to 3bar future litigation under the doctrine of thereof … Arbitration proceedings shall be held at claim preclusion. Agrolinz has argued that the Full Faith and Memphis, Tennessee, U.S.A.. Credit Clause of the United States Constitution mandates the federal district court in Tennessee to afford the Florida court’s Rule 47 of the Commercial Arbitration Rules of the AAA consent decree the same effect it would have in Florida and 47 states that, “no judicial proceeding by a party relating to bar Micro Flo’s arbitration action presently pending in the subject matter of the arbitration shall be deemed a waiver Tennessee. of the party’s right to arbitrate.” In addressing the issue, Florida legal precedent discloses The companies commenced implementation of the that in a settlement of a pending legal controversy by consent Agreement, with Micro Flo marketing Cuproxat to farms decree, the words “with prejudice” incorporated into the throughout the United States. stipulation of dismissal are without legal significance and will not bar a subsequent suit arising from the seminal case unless In the fall of 1993, two Florida farms that used Cuproxat there has been a judicial adjudication on the merits of the notified Micro Flo that their current tomato and pepper crops issues joined in the seminal suit. In North Shore Realty Corp. had been damaged by an herbicide identified as “2,4-D” v. Gallagher, 99 So. 2d 255, 257 (Fla. Dist. Ct. App. 1957), which was not normally found in Cuproxat. The Florida the court concluded that an order of dismissal “with farms charged that the Cuproxat used on their crops had been prejudice” should be treated as a dismissal without prejudice, contaminated with 2,4-D. Micro Flo concluded that the and the words “with prejudice” disregarded as surplusage source of the 2,4-D was copper sulfate it had received from when it is apparent that there had been no adjudication of the Agrolinz pursuant to their contract. substantive issues joined by the pleadings. See also Hassentuefel v. Howard Johnson, Inc., 52 So. 2d. 810, During the fall of 1994, David C. Brown Farms, Red Star 812 (Fla. 1951). Tennessee precedent is in accord. Farms, Inc., Di Mare Homestead, Inc., Di Mare Ruskin, Inc., Moreover, Tennessee and Florida subscribe to the legal and other Florida farms, all of whom had purchased and used Cuproxat manufactured by Micro Flo and sold by Farmers 3 Pursuant to Heyliger v. State Univ. & Community College Sys. of Tenn., 126 F.3d 849, 852 (6th Cir. 1997), the term “claim preclusion” will replace “res judicata” as traditionally defined under Tennessee precedent.

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Supply Inc.,1 commenced legal proceedings within the The final disposition of the Florida Cases, however, was Twentieth Judicial Circuit of Florida which were designated not journalized until on or about May 17, 1997. During the as a class action (the Florida Cases).2 In response, Micro Flo intervening period, legal counsel for Micro Flo and Agrolinz filed a cross-claim and a third-party claim against Agrolinz conducted telephone discussions, some of which were wherein Micro Flo sought recovery under theories of memorialized by an exchange of correspondence, wherein negligence, strict liability and breach of implied warranty of Micro insisted that it intended to and would pursue arbitration fitness, resulting damages arising from lost revenue from imposed by the September 8, 1999 agreement against sales of Cuproxat, loss of good will and litigation expenses Agrolinz for repayment of the purchase price for raw incident to defending the Florida Cases together with materials, and cost of finished product remaining in its indemnity in the full amount of damages and judgments inventories together with related freight, storage and interest obtained against Micro Flo, if any, by the plaintiffs in those costs, irrespective of releasing Agrolinz from the payment of cases. In its cross-claim and third-party claim against contribution and/or indemnity that Micro Flo may have been Agrolinz, Micro Flo did not seek repayment of the purchase required to pay the Plaintiffs, including litigation expenses price of its remaining inventories of copper sulfate purchased and attorney’s fees arising from the Florida Cases. from Agrolinz nor the cost of its remaining contaminated stock of Cuproxat still on hand, freight, storage and interest In an effort to avoid jeopardizing the settlement of the expenses -- all of which claims were incorporated into its Florida case, on May 17, 1997, Micro Flo and Agrolinz subsequently initiated Tennessee arbitration proceeding. journalized the following consent decree: The parties have agreed that Tennessee law applies to the ORDER OF DISMISSAL WITH PREJUDICE resolution of the instant dispute. UPON THE FOREGOING STIPULATION, this cause Recognizing their precarious legal liability and the and all claims asserted herein by MICRO FLO CO. magnitude of their financial exposure, Agrolinz, Micro Flo against AGROLINZ INC. and AGROLINZ MELAMIN and their respective insurance carriers pursued the generally be and the same are hereby dismissed with prejudice. accepted modus operandi of convenient cooperation in negotiating an umbrella settlement common to all of the DONE AND ORDERED in Chambers, at Collier multiple- party plaintiffs in the Florida Cases. County, this 17th day of May, 1997.

Ultimately, all of the Florida Cases including the Red Star On May 28, 1997, Micro Flo initiated arbitration Farms, Inc. litigation was settled on or about January 10, proceedings in the state of Tennessee before the American 1997. Arbitration Association claiming $1,000,000 in damages for repayment of its cost of the contaminated raw materials supplied by Agrolinz and used in the manufacture of Cuproxat, its available stock of Cuproxat, freight, storage and 1 interest. Farmers Supply, Inc. was the dealer which sold Cuproxat supplied by Micro Flo to the farmers that initiated the Florida Cases. Agrolinz responded to the arbitration action by seeking the 2 instant declaratory and injunctive relief, together with a The Red Star Farms Inc., litigation, for reasons not explained in the counterclaim for $3,500,000 before the United States District record, was considered and resolved separate and apart from the disposition of the other Florida Cases. Court for the Western District of Tennessee alleging that