Opinion
Case No: 02-71497.
September 25, 2003
OPINION AND ORDER GRANTING DEFENDANT VIA'S MOTION TO AMEND AFFIRMATIVE PLEADINGS AND FOR SUMMARY JUDGMENT DUE TO COLLATERAL ESTOPPEL
I. Introduction
This matter is before the Court on Defendant VIA's Motion to Amend Affirmative Pleadings and For Summary Judgment Due to Collateral Estoppel. [Doc. 97]. Plaintiff Volt responded [ Doc. 100] and Defendent filed a reply [Doc. 101].
Plaintiff Volt is a staffing agency which provided temporary employees for a Hewlett Packard ("HP") operation at HP's Ford/Dearborn location. The temporary employees had a clause in their contract barring them from working directly or indirectly for HP for a certain period of time following the completion of their project with Plaintiff. Plaintiff alleges that Defendant VIA nonetheless hired the individual Defendant temporary employees away from Volt to work for HP through VIA.
Plaintiff alleges that Defendant VIA tortiously interfered with Employee Contracts (Count I); tortiously interfered with prospective economic advantage with respect to HP (Count II) as well as other vendors (Count III); and, was unjustly enriched (Count IV) at the expense of Plaintiff.
Pursuant to an arbitration clause in their employment contracts, Volt and the individual employees submitted to an arbitration hearing on issues related to those raised in this lawsuit. Defendant prevailed. Due to the findings made against Volt during the arbitration, VIA contends that Volt should be collaterally estopped from presenting the same issues before this Court and that summary judgment is in order. For the reasons stated below, the Court GRANTS Defendant's Motion.
II. Facts
Plaintiff Volt Services Group ("Volt") is a staffing provider which offers a range of employees, including information technology ("IT") personnel, to various businesses. Defendant VIA Information Tools, Inc. ("VIA") provides managed technical services. Both Volt and VIA were established vendors of their common customer, Hewlett Packard, at HP's Dearborn location ("HP/Dearborn"). Volt supplied temporary personnel ("temps") to HP/Dearborn.
In November 2000, HP named Bill Bathgate manager of its Dearborn operation for Ford. Pl's Exh. 5 at 7. Beginning in January or February 2001, HP placed a moratorium on all personnel requisitions. Id. at 24. This prevented Bathgate from hiring new personnel directly or through Volt. Id. at 24-25. After several failed attempts at hiring new personnel, Bathgate realized he could solve his problems by using the managed service business model, a process entirely different from providing temps. VIA already supplied managed services to HP/Dearborn ( Id. at 15-16, 55), and Volt provided managed services at HP in California. Def's Exh. 1 at 14. A Managed Service Agreement ("MSA") solved Bathgate's problems because Bathgate could issue purchase orders contracting with the vendor to staff certain services without having to account to HP management for the increase in head count. Pl's Exh. 5 at 22, 31-32.
A managed service vendor takes responsibility for the successful delivery of the function its employees provide. It schedules and supervises its employees through an on-site supervisor and absorbs cost fluctuations due to overtime and redeployment of staff to cover departures. Def's Exh. 1 at 70. The managed service vender assumes the risk of providing the service at a not loss if the vendor cannot cover the service within the agreed upon service price. Temps, on the other hand, are scheduled and supervised by the customer, who remains responsible for the successful performance of the function and who absorbs all the costs. Temps are billed to the customer at a rate equaling their wages with a mark-up.
Bathgate told Volt Area Manager, Michelle Reppen, that he was moving to an MSA model and wanted service under a lump sum bill for a bundled service, rather than invoices with the names of individuals in it. Def's Exh. 2 at 23, 110. Bathgate offered the managed service opportunity to both VIA and Volt, approaching both parties in or about May or June 2001. Pl's Exh. 5 at 33, 130, 134.
Defendants claim that Plaintiff did nothing in the form of submitting a bid. Pl's Exh. 3 at 70. Defendants point out that in the period from January to May 2001, Reppen never indicated that she would like to propose an MSA to HP. Def's Exh. 4 at 56. In fact, when Bathgate approached her in May with a proposal for Volt's consideration, she returned to Bathgate a couple days later and said, "I'm sorry to tell you, but we have a master agreement with the Chimes System and that's the system we have to go through." Id.
On the other hand, Volt claims that it took several steps to secure an MSA with HP/Dearborn. On February 6, 2001, in response to requests by Bathgate, Reppen proposed that Volt provide services to HP/Dearborn under an "in source mode" or managed service agreement. Pl's Exh. 8. In January or February 2001, Dee Maggio, who was Volt's Global Director of the HP account, also contacted Kathy Jackson, a senior HP executive, for approval to have Volt operate an MSA at HP/Dearborn. Pl's Exh. 3 at 82; Pl's Exh. 10. One year later, in January or February 2002, Maggio again contacted Bathgate in efforts to secure an MSA at HP/Dearborn. Pl's Exh. 3 at 122. She had a meeting with Bathgate to obtain sufficient information to quote a managed services arrangement, but the necessary information was not forthcoming. Id. at 124-126.
Volt's offers to Bathgate to provide employees through an MSA fell on deaf ears. HP began requisitioning service from VIA under a clause in VIA's pre-existing MSA with HP/Dearborn. By July or August 2001, it was common knowledge that HP would not renew the contracts of Volt's temps ( Pl's Exh 7 at 82-84). By November 29, 2001, both Reppen and Maggio knew that Bathgate intended to discontinue use of Volt's temps in favor of the MSA with VIA ( Pl's Exh 3 at 103, 106, 116).
To staff the new program, VIA hired Volt employees. Volt notified VIA that it had non-compete agreements in place for some of its employees. Amended Complaint ¶ 17. When Reppen called Chuck Talley of VIA to complain of VIA's recruitment of Volt's employees, Talley admitted that he had "approached employees with job offers and many have accepted." Pl's Exh. 17 at 2 ; Pl's Exh. 7 at 42-43.
To resolve Volt's concerns over VIA's hiring of Volt employees in violation of the restrictive covenants, Maggio met with Greg DeLaere, President of VIA, in mid-January 2002. On January 23, 2002, Maggio sent DeLaere a written proposal for a resolution of the situation. Pl's Exh. 20. This prompted negotiations by e-mail and by telephone. Maggio followed up with a letter of February 3, 2002, modifying the original proposal. Pl's Exh. 21. Negotiations continued by e-mail and telephone. Finally, after various offers and counter-offers ( see Pl's Exh. 22), Maggio responded with an e-mail of February 12, 2002, following up on an earlier $59,000 offer and proposing a $50,000 settlement. Id. DeLaere responded that a fee of $50,000 "in total to settle the situation" was acceptable. Id. Maggio responded that "I will draft something up and have it sent over to you. Once it is signed and the initial $10,000 payment made to Volt, please feel free to contact the Volt folks." Id.
When DeLaere received Maggio's draft, it became clear that the parties misunderstood each other. Plaintiff contends that Maggio's draft identified a $50,000 payment as resolving the matter with regard to specific employees mentioned in the emails of February 7 through February 12, 2002. Pl's Exh. 23. On the other hand, DeLaere contemplated a $50,000 payment for any number of Volt employees that VIA might wish to hire in the future, without limit. Pl's Exh. 22.
The parties continued negotiations. On February 15, 2002, DeLaere sent an email spelling out his understanding of the proposal. Id. Maggio sent another proposal on March 8, 2002. DeLaere requested clarification regarding which individuals the $50,000 settlement referred to. Id. Maggio clarified this in a March 8, 2002 e-mail responding that "you can pick which six you want." DeLaere replied that he would consider it over the weekend. Id. Subsequently, on March 20, 2002, DeLaere sent an e-mail to Maggio claiming that the matter had been fully and finally settled between the parties back on February 12, 2002. Pl's Exh. 24. Defendants point to Maggio's February 12 e-mail where she indicated that "[a] flat fee of $50,000 in total to settle the situation and allow Volt employees to join VIA at our discretion, without further fee or proceedings is acceptable" ( Def's Ex. 10 at 3) and argues that this encapsulates the parties' final agreement.
The employment contracts contained an arbitration clause providing for final and binding arbitration. Accordingly, Volt simultaneously filed a notice of voluntary dismissal of the individual defendants from this case and filed a claim of arbitration against them. Def's Exh 1. The arbitrator conducted a four-day hearing from May 19 to 21, 2003. The hearing involved testimony from 22 witnesses, including eight by deposition. The arbitration included testimony from almost all of the principal actors in the case, including the individual defendants, Hewlett Packard's Bill Bathgate; Volt's Dee Maggio, Howard Zimmerman, Michelle Reppen, Jeff Bakke; and, VIA's Greg DeLaere and Chuck Talley, among others. The individual defendants were represented by the same attorney who has represented VIA in this litigation. The arbitrator made findings against Volt on the dispositive issues which VIA contends are common to both Volt's case before this Court and the arbitration case against the individual defendants.
The arbitrator found, inter alia, that: Volt "never submitted a bid" for the work; Pl's Exh. 2 at 2-4; Volt did not bid for the work, get approval from HP's Kathy Jackson, and did not pursue a managed service agreement directly with Bathgate. Id. at; "Volt did not prove that its inability to procure a managed service agreement with HP was due to the fact that Respondents resigned and accepted employment with VIA." Id. at 3; and Volt's non-compete agreements are not enforceable by Michigan law and are not designed to protect reasonable business interests. Id. at 6-12.
III. STANDARD OF REVIEW
Summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court must view the evidence and any inferences drawn from the evidence in a light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 (1986) (citations omitted), Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir. 2001).
IV. ANALYSIS
A. GENERAL PRECLUSION CONCEPTS
Courts have analyzed res judicata as consisting of two preclusion concepts: "issue preclusion" and "claim preclusion." Heyliger v. State University and Community College System of Tennessee, 126 F.3d 849 (6th Cir. 1997), citing Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1 (1984). "Issue preclusion [or collateral estoppel] refers to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided." Id. Claim preclusion, on the other hand, "refers to the effect of a judgment in foreclosing litigation of a matter that never has been litigated, because of a determination that it should have been advanced in an earlier suit." Id. The doctrine of collateral estoppel is intended to relieve parties of multiple litigation, conserve judicial resources, and, by preventing inconsistent decisions or factual determinations, encourage reliance on adjudication. Detroit v. Qualls, 434 Mich. 340, 357, n. 30 (1990), citing Allen v. McCurry, 449 U.S. 90, 94 (1980).
This Court has noted that:
[I]ssue preclusion applies where: "(1) the relevant issue was actually litigated in the prior proceeding; (2) determination of the issue was `a critical and necessary part of the decision in the prior proceeding'; and (3) the prior forum must have given the party `against whom estoppel is asserted a full and fair opportunity to litigate the issue.'"Kundrat v. Halloran, 145 F. Supp.2d 865, 869 (E.D.Mich. 2001), citing Central Transport., Inc. v. Four Phase Sys., Inc., 936 F.2d 256, 259 (6th Cir. 1991). Generally, "collateral estoppel includes an element of mutuality, requiring the previous litigation of the issue to have had a preclusive effect on the party asserting collateral estoppel as a defense." Keywell and Rosenfeld v. Bithell, 254 Mich. App. 300, 340-41, citing Lichon v. American Universal Ins Co, 435 Mich. 408, 427 (1990). Mutuality exists if the party taking advantage of the earlier adjudication would have been bound by it. Lichon, 435 Mich. at 428. Despite a modern national trend to abandon mutuality, the requirement is still applicable in Michigan. Id. Nonetheless, a number of exceptions to the mutuality requirement have recently arisen, particularly in the area of defensive use of collateral estoppel. See Knoblauch v. Kenyon, 163 Mich. App. 712, 720 (1987).
a. COLLATERAL ESTOPPEL
In this case, VIA claims that collateral estoppel precludes Volt from litigating the same issues against VIA that were decided in the arbitration between Volt and the individual defendants. Volt argues that because VIA was not a party to the arbitration proceedings, it cannot assert collateral estoppel. VIA correctly notes that federal courts ordinarily give preclusive effect to arbitrations. "[B]oth federal and Michigan law give estoppel effect to issues actually litigated in an arbitration proceeding between the same parties unless the procedures were unfair. Central Transport, 936 F.2d at 260, citing lvery v. United States, 686 F.2d 410, 413-14 (6th Cir. 1982), cert. denied, 460 U.S. 1037 (1983). Volt's sole argument with respect to whether or not collateral estoppel applies to this case is that VIA was not a party to the underlying arbitration, and thus, does not meet the mutuality requirement in order for estoppel to apply.
Volt relies primarily on Howell v. Vito's Trucking Excavating Co., 386 Mich. 37 (1971), which indicated that in order to assert collateral estoppel in Michigan, mutuality of estoppel must be present. The court indicated that mutuality exists if a person attempting to take advantage of the earlier judgment would have been bound by it if it had gone against him. Id. at 43. The Howell court "completely foreclosed the offensive use of collateral estoppel absent identical parties or their privies in successive civil suits, and suggested that defensive use by one not a party or privy to a party in the suit might be permissible only where one of `the well-recognized exceptions to the mutuality rule' is available to the defendant." Knoblauch, 163 Mich. App. at 720; see also Braxton v. Litchalk, 55 Mich. App. 708, 721 (1974). Those exceptions are compiled in Restatement Judgments (First), §§ 94-111, pp 467-530.
One of the exceptions to the mutuality requirement, upon which VIA relies, provides that collateral estoppel can be raised in a defensive manner by a defendant in a subsequent action if that defendant and the defendant in the previous action had a special relationship, the culpability of one of the parties is premised on the liability of the other party, and one of the two parties was exonerated in the previous action. Lichon, 435 Mich. at 428, n. 16; Arim v. General Motors Corp., 206 Mich. App. 178, 194 (1994); Bigelow v. Old Dominion Copper Mining Smelting Co, 225 U.S. 111, 127-128 (1912); Couch v. Schultz, 176 Mich.App 167, 169-173; Braxton v. Litchalk, 55 Mich.App 708, 720-721 (1974).
VIA claims that because it remained the employer of all but one of the individual defendants, it had a special relationship or employment relationship with them. Because the individual defendants have been exonerated from the breach of contract claims, VIA maintains that it should be entitled to collateral estoppel. However, Volt correctly notes that the individual defendants were not employees of VIA when they were induced by VIA to breach their employment contracts with Volt. This instigation of the breach took place while the individual defendants were still working for Volt. Accordingly, although VIA and the individual defendants shared "some relationship" as a staffing company working closely with and interested in recruiting these specific employees, the Court declines to find that they had the type of employment relationship envisioned in Lichon and Arim, supra.
Nonetheless, the lack of the traditional exceptions does not necessarily preclude collateral estoppel. In addition to the well-established exceptions, there may be other situations in which the mutuality requirement is relaxed. Alterman v. Provizer, Eisenberg, Lichtenstein Pearlman, P.C., 195 Mich. App. 422, 425 (1992), citing Lichon, 435 Mich. at 428, n. 16; Knoblauch, 163 Mich. App. 712. In Knoblauch, an attorney who had represented the plaintiff in a criminal case was sued for malpractice. Knoblauch, 163 Mich. App. at 713-715. In the underlying criminal case, the malpractice-plaintiff had asserted an ineffective assistance of counsel claim which failed after an evidentiary hearing. Id. at 713-714. The court allowed counsel to use that determination defensively in the civil case to collaterally estop relitigation of the competency issue. Id. at 725. In Knoblauch, the court acknowledged that the parties were not identical, that there was no mutuality, and that none of the recognized exceptions to the mutuality requirement applied. Nevertheless, it applied collateral estoppel. Alterman, 195 Mich. App. at 425, citing Knoblauch, 163 Mich. App. at 720.
This Court notes that the legal underpinnings of Howell, which expressed the mutuality requirement, have diminished significantly in the last decade. "The mutuality requirement set forth in the Restatement (First) and cited in Howell has been dropped in Restatement Judgments (Second), §§ 27-29, pp 119-123." Knoblauch v. Kenyon, 163 Mich. App. 712, 721 (1987). Further, "1B Moore, Federal Practice, also relied upon by the Howell Court, now states that the states adhering to the mutuality requirement `constitute a small minority.'" Id.
The Supreme Court, when considering defensive use of collateral estoppel, abandoned the mutuality requirement, at least in cases where a patentee seeks to relitigate the validity of a patent after a federal court in a previous lawsuit has already declared it invalid. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971). A later Supreme Court decision analyzing Blonder-Tongue indicated that the "broader question" before the Court was "whether it is any longer tenable to afford a litigant more than one full and fair opportunity for judicial resolution of the same issue." Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 328 (1979), citing Blonder-Tongue, 402 U.S. at 328. The Supreme Court strongly suggested a negative answer to that question, citing to the opinion of Justice Traynor for a unanimous California Supreme Court in Bernhard v. Bank of America Nat. Trust Savings Assn., 19 Cal.2d 807, 812 (1942):
"No satisfactory rationalization has been advanced for the requirement of mutuality. Just why a party who was not bound by a previous action should be precluded from asserting it as res judicata against a party who was bound by it is difficult to comprehend."Parklane, 439 U.S. at 328, citing Bernhard, supra.
The Parklane court went on to note:
"In any lawsuit where a defendant, because of the mutuality principle, is forced to present a complete defense on the merits to a claim which the plaintiff has fully litigated and lost in a prior action, there is an arguable misallocation of resources. To the extent the defendant in the second suit may not win by asserting, without contradiction, that the plaintiff had fully and fairly, but unsuccessfully, litigated the same claim in the prior suit, the defendant's time and money are diverted from alternative uses — productive or otherwise — to relitigation of a decided issue."Id., citing Blonder-Tongue at 329. Thus, it is clear, as the Supreme Court has recognized, that an increasing number of courts have rejected the doctrine of mutuality of estoppel as unsound; the principle is undergoing fundamental change in the common-law tradition. Blonder-Tongue, 402 U.S. at 327.
This Court finds the Sixth Circuit's reasoning in Central Transport persuasive. In Central Transport, three subsidiaries of Centra, Inc. brought suit against subsidiaries of Motorola for breach of contract, tortious interference with contract, misrepresentation, and RICO violations. Due to a narrow arbitration clause, only the breach of contract claim was submitted to arbitration while the remaining claims were pending in the district court. The arbitrators found that no breach of contract occurred and the defendants moved for dismissal of the remaining commercial tort claims because of the preclusive effect of the arbitrators' findings. The plaintiff claimed that the arbitrators had only decided the breach of contract issue. In sustaining the district court's dismissal, the Central Transport court noted that:
the district judge correctly recognized that the Supreme Court has held that once an issue has been fully litigated and necessarily determined by an adjudicatory body, a party and its privies are precluded from raising that issue in a subsequent proceeding. The district judge also correctly recognized that both federal and Michigan law give estoppel effect to issues actually litigated in an arbitration proceeding between the same parties unless the procedures were unfair.Central Transport, 936 F.2d at 259, 260 (citations omitted). Although "all the parties in the litigation were not party to the arbitration," the court held that the plaintiffs "had a full and fair opportunity to litigate the issues in the prior proceeding," and accordingly, upheld the preclusive effect of the arbitration result.
Another Sixth Circuit opinion, although unpublished, is instructive nonetheless. In Dietrich v. Sun Exploration Prod. Co., 21 F.3d 427 (6th Cir. 1994), Plaintiffs alleged that the defendant oil company had illegally drained oil from a field, had failed to compensate them for the oil drained, and had in other ways improperly managed the field. The district court disposed of Counts I, III and IV on summary judgment in favor of defendants. Plaintiffs appealed. The court held that the issues were barred due to collateral estoppel. In so holding, the court noted that there was a prior lawsuit, Wronski v. Sun Oil Co., 108 Mich. App. 178 (1981) ( "Wronski II"), against Sun Oil from a different group of plaintiffs regarding the same oil field. The defendants argued and the district court found that plaintiff was collaterally estopped from litigating this claim by a series of Michigan state administrative and judicial decisions stemming from Wronski II. In Wronski II, the Michigan Court of Appeals remanded the case to an ALJ who submitted a proposal for decision in favor of Sun Oil which was affirmed by the Supervisor of Wells and the Michigan state courts ("Fulkerson Proposal"). The Dietrich court noted:
This Court notes that unpublished opinions are not binding authority under the rules of stare decisis.
Sun Oil and its predecessors were parties to the administrative proceedings and Wronski II, but the plaintiffs, the Dietrichs, were not. However, the Dietrichs were given notice of and the opportunity to formally participate in the administrative proceedings, attended all of the hearings (Edgar Dietrich was a lawyer for the plaintiffs), and actually participated through Dietrich in the hearings. The Dietrichs' interests were identical to the interests of the named plaintiffs, and the Dietrichs had ample opportunity through Edgar Dietrich's participation to assert and protect those interests. Although mutuality may not be strictly fulfilled here, Michigan allows a more liberal use of defensive estoppel in cases such as this, where the standards under which the litigation will take place are identical and where the parties have had their interests heard and protected in the first litigation. See, e.g., Alterman v. Provizer, 195 Mich. App. 422, 425 (1992). We therefore find that the Fulkerson Proposal is preclusive in this action.Dietrich, 21 F.3d at *4.
Furthermore, this Court notes that "a nonparty to an earlier proceeding will be bound by the result if that party controlled the earlier proceeding or if the party's interests were adequately represented in the original matter. Dearborn Heights School Dist. No. 7 v. Wayne County MEA/NEA, 233 Mich. App. 120, 127 (1998), citing Becherer v. Merrill Lynch, Pierce, Fenner Smith, Inc., 43 F.3d 1054, 1069-1070 (6th Cir. 1995).
With these principles in mind, the Court notes that VIA's interests were adequately represented in the arbitration. Precisely the same issues were determined during the arbitration as are before this Court. VIA's key witnesses were present during the arbitration and substantial evidence was produced in its favor. If re-litigated in this Court, the same key witnesses would be present, giving the same testimony, regarding the same issues. Further, many of the exhibits used during arbitration would be used here. Moreover, the individual defendants were represented by the attorney representing VIA here. Despite the lack of mutuality and the fact that no traditional exceptions apply, the Court finds that VIA's defensive use of collateral estoppel is proper. VIA's interests were properly and effectively represented during the arbitration and, as such, the determinations made during arbitration are binding and preclude this court from relitigating the same issues. Applying collateral estoppel to the facts here meets the doctrinal goal of preventing "multiple litigation, conserving judicial resources, and, by preventing inconsistent decisions, encouraging reliance on adjudication." Keywell, 254 Mich. App. at 341.
Because Volt is estopped from relitigating the issues resolved during the arbitration, the Court does not reach its arguments regarding the validity of its non-compelete agreements and finds that summary judgment is appropriate.
VII. CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant VIA's Motion to Amend Affirmative Pleadings and For Summary Judgment Due to Collateral Estoppel.