State Court Order On Arbitrability Of Claims Has Preclusive Effect In Federal Court When Court Resolved Issue In A Reasoned Opinion
HABER v. BIOMET, INC. (August 20, 2009)
Biomet produces artificial joints. It contracted with Paul Haber to be its distributor in parts of Florida. Their relationship was governed by two contracts -- one made in 1995 and one made in 1999. The 1995 contract contained a forum selection clause favoring an Indiana court. The 1999 contract contained a clause requiring arbitration in Chicago. Biomet came to believe that Haber was in breach of the contracts and brought an action in Indiana state court. In response, Haber filed a complaint in the local federal court to compel arbitration. The federal court dismissed the complaint, concluding that venue for such an action was proper only in Chicago, the selected forum of the arbitration. Haber also moved to compel arbitration in the state court action. The state court compelled arbitration only on claims that arose under the 1999 agreement and ordered Biomet to identify which of its claims arose under that agreement. Haber did not appeal the state court decision -- Haber did appeal the federal court decision.
In their opinion, Judges Posner, Kanne and Wood affirmed. Before addressing the venue issue, the Court addressed res judicata. The Indiana court, although not resolving all matters, concluded that claims under the 1995 agreement were not arbitrable. The Court had to decide whether that ruling was of sufficient finality to be afforded res judicata effect. Indiana requires finality for issue preclusion. The factors a court should look at are whether: the parties were fully heard, the decision was rendered in a reasoned opinion, the order was appealable, and the order was appealed. The Court concluded that the state court’s order was final. The issue was before the court, was decided in a reasoned opinion and was appealable (though not appealed). Having found finality, the Court easily concluded that the order met the next four elements barring relitigation: a court of competent jurisdiction, an issue actually determined, identical parties, and a decision on the merits. The state court ruling was entitled to preclusive effect. The Court also briefly addressed the venue issue. Section 4 of the Federal Arbitration Act requires that, if an arbitration clause selects a forum for arbitration, a motion to compel the arbitration must be brought in a court in the forum selected. The venue decision was thus proper.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select