NTCH-Wa, Inc. v. Zte Corp.

921 F.3d 1175

NTCH-WA, INC., a Washington corporation, Plaintiff-Appellant,

v.ZTE CORPORATION, a business incorporated under the laws of the People’s Republic of China, Defendant-Appellee.

No. 17-35833

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 5, 2019 Seattle, Washington

Filed April 25, 2019

Shannon Gallagher (argued), Law Office of Shannon Gallagher, Irvine, California; Joshua E. Austin, NTCH-WA Inc., Columbia, South Carolina; for Plaintiff-Appellant.

Laura Eve Besvinick (argued), Stroock & Stroock & Lavan LLP, Miami, Florida; Michael J. Kapaun, Witherspoon Kelley, Spokane, Washington; Frank T. Spano, Polsinelli PC, New York, New York; for Defendant-Appellee.

Before: Ronald M. Gould and Richard A. Paez, Circuit Judges, and Dean D. Pregerson,^* District Judge.

GOULD, Circuit Judge:

Plaintiff-Appellant NTCH-WA, Inc. previously arbitrated breach of contract and related claims against ZTE USA, a wholly-owned subsidiary of Defendant-Appellee ZTE Corp. ZTE Corp. was not a party to that arbitration. The arbitrator denied NTCH-WA’s claims, the District Court for the Middle District of Florida confirmed the award under the Federal Arbitration Act, 9 U.S.C. § 9, and the Eleventh Circuit affirmed the district court’s judgment.

The question before us is whether the arbitration award and its confirmation by a district court together bar NTCH-WA from pursuing its current claims against ZTE Corp., under the doctrine of claim preclusion.¹ We hold that it does.

When a federal court sitting in diversity confirms an arbitration award, the preclusion law of the state where that court sits determines the preclusive effect of the award. Because a district court in Florida confirmed the award here, Florida law applies. Under Florida law, claim preclusion bars NTCH-WA’s claims because NTCH-WA is seeking the same remedy it sought in arbitration, the evidence needed to prove NTCH-WA’s claims here is the same, ZTE Corp. is in privity with its wholly-owned subsidiary ZTE USA, and the parties are suing in the same capacity as in the arbitration. For these reasons, we affirm the district court’s dismissal of NTCH-WA’s claims.

I

The background to the current controversy involves several related parties and suits: NTCH-WA is an entity—along with PTA-FLA, Inc.; Daredevil, Inc.; and NTCH-West Tenn., Inc.—"owned and controlled by Eric Steinmann." PTA-FLA, Inc. v. ZTE USA, Inc. , 844 F.3d 1299, 1302 (11th Cir. 2016). "[T]hey operate together under the name ‘ClearTalk.’ " Id. ClearTalk "offer[s] prepaid and flat-rate cell phone service to customers with poor credit or who otherwise cannot open accounts with major cell phone providers." Id.

The ClearTalk entities filed suit against ZTE USA in 2011, asserting breach of contract and related claims. Daredevil sued ZTE USA in Missouri; PTA-FLA sued ZTE USA in South Carolina; and NTCH-West Tenn. sued ZTE USA in Tennessee. Steinmann sued ZTE USA and ZTE Corp. in California. ZTE USA moved to compel arbitration, and the parties eventually stipulated to a consolidated arbitration. From that point, the arbitration "went forward as a single unified proceeding that bound ZTE USA, PTA-FLA, Daredevil, NTCH-WA, and NTCH-West Tenn." PTA-FLA, Inc. , 844 F.3d at 1303.

In December 2011, the ClearTalk entities filed an Amended Statement of Claim in the arbitration. In the Amended Statement, each of the ClearTalk entities asserted claims against ZTE USA and ZTE Corp., although only Steinmann had, to that point, brought claims against ZTE Corp. The ClearTalk entities nonetheless contended that ZTE Corp. should be a party to the arbitration as to all claims because ZTE USA and ZTE Corp. "were alter egos of each other. ZTE Corp. so dominates the operations and decision-making of ZTE USA that the two entities are in effect indistinguishable." In the alternative, the ClearTalk entities asserted that ZTE USA and ZTE Corp. "were in fact agents and/or principals and/or coconspirators of each other."

The arbitrator declined to hear the claims against ZTE Corp., with the exception of Steinmann’s claims. The arbitrator determined "that the scope of the arbitration" was limited to "all the claims, counterclaims, and defenses that exist or may arise between and among the parties subject to the jurisdiction of the courts in the lawsuits pending at the time of the agreement to arbitrate."

The arbitration hearing began in August 2013. The arbitrator "heard close to 30 witnesses, and, in addition, reviewed many hundreds of exhibits submitted for consideration." In February 2014, the arbitrator issued the Final Award in the arbitration, denying the ClearTalk entities’ claims. The United States District Court for the Middle District of Florida confirmed the award under the Federal Arbitration Act, 9 U.S.C. § 9, and the Eleventh Circuit affirmed the district court’s judgment. See PTA-FLA, Inc. , 844 F.3d 1299.

Once the arbitrator determined that NTCH-WA could not proceed against ZTE Corp. in arbitration, NTCH-WA initiated this action. Its Second Amended Complaint asserted claims for breach of contract, tortious interference, fraudulent misrepresentation, negligent misrepresentation, promissory estoppel, and unjust enrichment against ZTE Corp. The district court stayed the case several times pending the conclusion of arbitration. After the Eleventh Circuit rendered its decision, the district court lifted the stay and granted ZTE Corp.’s motion for summary judgment, dismissing NTCH-WA’s claims. The district court held that the arbitration award precludes NTCH-WA from pursuing its current claims. NTCH-WA filed a timely notice of appeal.

II

We review de novo whether claim preclusion bars NTCH-WA’s claims. Harris v. Cty. of Orange , 682 F.3d 1126, 1131 (9th Cir. 2012).

III

A

At the threshold, we address a choice-of-law question: namely, which law determines the preclusive effect of the arbitration award? The district court in this case applied federal law, ZTE Corp. contends that Florida law applies,² and NTCH-WA contends that Washington law applies. The question is one of first impression in our circuit.

A federal-court order confirming an arbitration award has "the same force and effect" as a final judgment on the merits, 9 U.S.C. § 13, including the same preclusive effect. See Fid. Fed. Bank, FSB v. Durga Ma Corp. , 387 F.3d 1021, 1023 (9th Cir. 2004) ("A judgment confirming an arbitration award is treated similarly to any other federal judgment."); see also Apparel Art Int’l, Inc. v. Amertex Enters. Ltd. , 48 F.3d 576, 585 (1st Cir. 1995) (holding that "when a federal district court enters a judgment confirming an arbitration award pursuant to the Federal Arbitration Act, that judgment has res judicata effect as to all matters adjudicated by the arbitrators and embodied in their award"); Rudell v. Comprehensive Accounting Corp. , 802 F.2d 926, 929 (7th Cir. 1986) (giving claim preclusive effect to an arbitration award confirmed by a district court); Restatement (Second) of Judgments § 84(1) (1982) (subject to certain exceptions not relevant here, "a valid and final award by arbitration has the same effects under the rules of res judicata ... as a judgment of a court"). "[F]ederal common law governs the claim-preclusive effect of" a judgment rendered "by a federal court sitting in diversity." Semtek Int’l Inc. v. Lockheed Martin Corp. , 531 U.S. 497, 508, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001). But federal common law, in such circumstances, requires us to "determine the preclusive effect of the prior [federal] decision by reference to the law of the state where the rendering federal diversity court sits." Daewoo Elecs. Am. Inc. v. Opta Corp. , 875 F.3d 1241, 1246–47 (9th Cir. 2017) ; see also Taco Bell Corp. v. TBWA Chiat/Day Inc. , 552 F.3d 1137, 1144 (9th Cir. 2009).

Because a federal-court order confirming an arbitration award has "the same force and effect" as a final judgment on the merits, 9 U.S.C. § 13, and because we determine the preclusive effect of a prior federal diversity judgment by reference to the law of the state where the rendering court sat, we hold that when a federal court sitting in diversity confirms an arbitration award, the preclusion law of the state where that court sits determines the preclusive effect of the arbitral award. Such a rule properly mirrors the rule that applies when a federal court is asked to give preclusive effect to an arbitration award that has been confirmed by a state court. See Caldeira v. Cty. of Kauai , 866 F.2d 1175, 1178 (9th Cir. 1989) ("The state court’s confirmation of the arbitration award constitutes a judicial proceeding for purposes of [ 28 U.S.C. § 1738 ], and thus must be given the full faith and credit it would receive under state law.... To determine whether the requirements of issue preclusion are satisfied, this court must look to the law of the state in question."); see also Lynne Carol Fashions, Inc. v. Cranston Print Works Co. , 453 F.2d 1177, 1184 (3d Cir. 1972) ("It has long been the law that the Full Faith and Credit Clause of the Constitution and the federal statute implementing that clause have made that which has been adjudicated in one state res judicata to the same extent in every other. Since the arbitration award involved here, and the judgment entered thereon, were rendered in New York, a Pennsylvania trial court must accord that award the same res judicata effect that New York courts would. And because a federal district court in a diversity case must apply the same principles of res judicata as would the corresponding state trial court, the federal court is also bound to apply the New York law of res judicata to the facts of this dispute." (quotations omitted)); 18B Charles Alan Wright et al., Federal Practice & Procedure § 4475.1 (2d ed. 2018 update) ("[I]t seems to be agreed that once a state court has confirmed an award, the full faith and credit statute requires other courts to look to the law of that state."). Applying the same...