Hoffman Construction Company of Oregon, an Oregon Corporation v. Active Erectors and Installers, Inc., a Washington Corporation

RYMER, Circuit Judge: After receiving a favorable against Hoffman Construction Company in Alaska state Active Erectors and Installers, Inc. filed a demand for arbitra- tion of its RICO claim against Hoffman, a claim which Active litigated had not state court. Hoffman then this suit for declaratory injunctive and relief in order-to forestall such аn arbitration. The district granted permanent court injunc- tion Hoffman’s favor. The court rea- soned that Active its waived to arbi- trate its RICO claim opted when it pro- ceed in state and that the court state action, under the judicata, doctrine of res barred subsequent attempt to arbitrate that claim. aрpeal,

On Active contends that its deci- proceed sion to in state court certain of its claims does not constitute a waiver of a subsequent seek arbitration of believe, RICO claim. We however, that the district court correctly found that Ac- tive’s waiver of arbitration in favor of an state proсeeding court included waiver of potential arbitrate a RICO claim. That state court action there- fore bars a subsequent RICO arbitration on the based same set facts because of judicata. res Accordingly, we affirm.

I In October Hoffman and the Kenai Borough Peninsula entered into a contract high construction of a school in Homer, Alaska. Hoffman then subcon- tracted the structural steel work to Active. The contract between Hoffman and Active provided between them that did not involve the property conduct Campbell, Seattle, Wash., Edward D. owner to be ‍​‌‌‌​​‌​‌​‌​‌‌‌​‌‌​‌​​‌‌‌‌‌‌​​​‌‌‌‌‌​‌‌​‌‌​‌‌‌‌​‍arbitrated unless defendant-appellant. agreed otherwise. in favor of court ruled ing. The district among subsequently arose dispute A held that the The court Hoffman, concerning Hoffman. Active Borough, under always been arbitrable claim had In December overruns. cost by proceeding in asserting, agreement, in federal sued Hoffman claim, having waived Fеbruary In a RICO others, claim. court without among RICO court, against state Active get to into arbitration arbitration Active demanded year, adjudicating the precluded Active RICO April 15 of was from On Hoffman. asserting that to in a new arbitration. a letter Hoffman wrote “bring[ of to all prepared Active was ] II against Hoff- Active monetary claims of the construction arising out of man” that Active waived argues Hoffman (Emphasis state court. in Alaska project party “A compel arbitration. right to its however, letter, also added). stated right to prove of a arbi seeking to waiver claim, along two other with that the RICO (1) knowledge tration must demоnstrate: court. Ac- claims, in federal remain would arbitration; existing right compel anof it Hoffman further informed tive existing (2) with that acts inconsistent demand its arbitration dismiss would (3) party oppos prejudice to the right; and Active that it soon as Hoffman assured resulting from incon ing arbitration position “that all change its v. A. Becker Pari acts.” Fisher G. sistent may be tried state against it [in claims Cir.1986). (9th Inc., bas court].” the district court Hoff agree with We the exist satisfactorily demonstrated man court the district dismissed May prongs. all three ence of ground suit on the federal arbitration in- gone to claims should have First, that Active lacked it cannot be said subsequent- We tо federal stead of court. compel arbitra- knowledge of the Sparling v. the dismissal ly affirmed itself called arbitra- tion. The contract Co., 864 F.2d 635 Construction and Active Hoff- disputes Hoffman between tion Cir.1988). (9th court, prior Additionally, the district man. action, dismissed state to initiation Active its In December ground that the federal suit on claim. RICO state suit without gone to arbitration. claim should state suit Thus, was as of the time federal Thus, and the both the contract had dis- initiated, district court the federal of the informed Active (along with all court the RICO claim missed Supreme fact that the claim. The had been of its claims), RICO claim and other no definitively address аrbi- proceeding. did not court Court asserted state until 1987 does not trability of RICO claims Then, responded when the conclusion the issue vitiate not raise and did state suit were arbitrable. aware that its claims Active, with- arbitration, in March Express Inc. request. The state Shearson/American drew its arbitration 220, 238-42, McMahon, August of July and wаs tried court case 2343-46, No- L.Ed.2d superior court in March 1988 and precedential barrier no tably, Active faced Active. favor of judgment in entered to arbitration RICO in this circuit Sparling opinion our We issued Supreme Court’s decision prior to the the district affirmed 1988. We December in Shearson. agreed ground that Active сourt on prong of the waiver As to the second In Jan- to arbitration. its claims to submit test, properly concluded court the district opinion shortly after this was uary inconsistent a manner acted in that Active for arbi- issued, new demand filed a Active with- right to its arbitration. Hoffman with claim. its tration light request to arbitrate its district drew brought this suit in arbitrability, and that waiver Hoffman’s injunctive relief to declaratory and seeking “any of the extended proceed- waiver from prevent such an (Empha- it Erectors.” position between and Active but retained its that it would de- added). Thus, sis Active waived arbitration mand arbitration over federal litigation. Hoffman, including result, оf all claims As a the only court in which Active claim. Active then bring sued could any of its claims was state court, undeniably act is inconsistent and choosing to sue in state enforcing right. with its arbitration Fur- waived its to arbitration. thermore, at the time Active initiated its Finally, prejudice to Hoffman appar- suit, already it had told statеd, ent. As the district court “[t]he the district court that all of its claims were prejudice claim, is staleness of the yet opted it still for a importantly, more subjection of Hoff- litigation route —state court was in- —that litigation man to the process Court, in State right. consistent with that arbitration discovery ‍​‌‌‌​​‌​‌​‌​‌‌‌​‌‌​‌​​‌‌‌‌‌‌​​​‌‌‌‌‌​‌‌​‌‌​‌‌‌‌​‍process, expense litiga- tion,

Active contends that it did not waive its judgment $679,434.76.” and the for right to arbitration when it initiated the 111

Alaska state court suit because it did not bring believe that it could claim in RICO Having waived arbitration in favor argument unavailing state court. This in of the Alaska state court res we Belzberg, because decided Lou v. 834 judicata now bars а RICO arbitration based 730, (9th Cir.1987), F.2d 735-39 cert. de on the same set of facts. Active received a 1302, nied, 485 U.S. 108 S.Ct. 99 judgment against in Hoffman state court. (1988), permitting juris L.Ed.2d 512 “It is now settled that a federal court must diction, judgment before final was entered give judgment to a state-court the same Active, therefore, in the state action. could preclusive given effect as would be that sought permission have from the state judgment under the law of the in State pleadings court to amend its to include a judgment which the was rendered.” Migra holding RICO claim. Because the in Lou City Educ., v. Warren School Dist. Bd. of gave right Active the to assert its RICO 75, 81, 79 claim in the state it had no excuse (1984). Alaska, L.Ed.2d 56 In judicata res so, given not to do that the would bar Active’s RICO claim because res indisputably arose out of the same course judicata covers “relevant claims that could of conduct as the other state claims. prior have been raised” in the but State, were not. DeNardo v. 740 P.2d Nor does our in Sparling, dеcision 864 (Alaska) added), (emphasis 456 cert. denied 635, support Active’s contention. dismissed, appeal 108 Sparling, we held that Hoffman had not (1987). A mere waived in favor of a federal change legal theory asserted cannot (“Hoffman case. only Id. at 639 already an revive barred action. Id. Be waived the in аrbitration clause favor of cause the claim arose out of the ongoing proceedings, not litigated in already same course of events action.”). Thus, simply Sparling federal suit, the Alaska state court that, proposition stands for the if the that claim arbitrate now. choice were between аnd a arbitration fed- any (including eral court case as to claims AFFIRMED. RICO), Active had to arbitrate those claims REINHARDT, Judge, dissenting: Hoffman never because waived its in arbitration favor of a federal case. respectfully I dissent from the decision Active, majority. foreclosed from I that the thresh- of the believe agrеement reach in is whether Active still could with Hoff- old this case man, did, actually justified pursuing as it of its was its effort to ob- claims could tain a determination of its RICO state court. was, 1985; agreement, early because it Pursuant claims, having done so. including penalized waived arbitration for all should not be RICO, action, Moreovеr, subsequently for- favor of the state court Active did not

800 (1987), February of 1985 a pursue its RICO claim feit its litigant likely have be- the reason that it reasonable only separately, contrary was true. The when it lieved preserved specifically issue, leading case on the Mineracao action. S.A. filed its state court Int’l, Inс., v. da Trindade-Samitri Utah must threshold determination That the 566, amended, F.Supp. F.Supp. 576 579 justified keeping be whether (S.D.N.Y.1983), held that RICO 1049 which originally separate when it its RICO claim recently were not claims early 1985 can be demanded appeals, affirmed the court of see been examining ‍​‌‌‌​​‌​‌​‌​‌‌‌​‌‌​‌​​‌‌‌‌‌‌​​​‌‌‌‌‌​‌‌​‌‌​‌‌‌‌​‍majori III of the section seen (2d Cir.1984). 196 A number upon opinion. opinion dependent ty See, agreed. e.g., courts had Witt of other preclusive effect of proposition Inc., F.Supp. 602 Lynch, v. Merrill any,claim that could includes (W.D.Pa.1985); Marine Ins. 870 Universal here, proceeding; in that raised Co., F.Supp. Beacon Co. v. Ins. includes the according majority (W.D.N.C.1984); Ho-Wing Wilcox split-off prior to that Active RICO claim Sit, (N.D.Cal.1984). F.Supp. filed. court action was the time appear There does not to have been State, (citing at DeNardo v. ante Thus, in contrary authority at that time. 453, (Alaska), cert. denied 740 P.2d 456 certainly justified in be- 1985 Active was dismissed, 108 484 U.S. appeal lieving that its RICO claim was not arbitra- (1987). Although 98 L.Ed.2d 239 S.Ct. ble. litigant proposition may that a not ordi stated, so are narily split his claim is often support There are other factors which important exceptions to that rule. several split light to its claims in of Active’s (Second) Restatement generally See the reasonableness of its belief Judgment 26.1 If a claim falls within § First, sрe- claims were not arbitrable. exceptions prop and has of those one facing whether to cific course, is, erly precluded it split-off, in in bring its RICO claim court or arbitra- failure to raise it by plaintiffs of a virtue rely may litigant that a cannot tion. It Here, are two principal action. there uncertаinty choosing to the law when applicable and that bar exceptions that are split claim between state and federal first, plaintiff in this case: preclusion generally the law court. such a may split his claim when defendant state and courts are assumes that second, split; plain acquiesces litigаnt equally competent so that a cannot jurisdictional tiff do so when barriers dividing justify its claims between 26(a) (c). justify split. id. & §§ pick one and seek a definitive two—it must satisfy Although Active’s actions both issue in that jurisdictional resolution of the exceptions, majority never dis these Restatement 86 comment b. court. See § cusses eithеr of them. contrast, generally do not assume By we proceedings are February, that courts and arbitral split its claim in Active first contrary, the law equally competent; ‍​‌‌‌​​‌​‌​‌​‌‌‌​‌‌​‌​​‌‌‌‌‌‌​​​‌‌‌‌‌​‌‌​‌‌​‌‌‌‌​‍to the an arbitration demand when it filed ordinarily legal disputes are claim while assumes that that did not contain its RICO courts unless continuing pursue its RICO actiоn resolved parties reason, them. For this split agreed to arbitrate federal court. Active’s decision to courts, for the appears justified on the issue claim to have been arbitrator, AT T to decide. See & Although by June not the jurisdictional grounds. America, 8, 1987, Workers that RICO v. Communications it was established 1415, 1417-18, 643, 647, 106 S.Ct. arbitrable, v. 475 U.S. see Shearson claims were (1986); Steelwork- McMahon, 96 89 United Co., law, Although Clark v. Bear Stearns & (9th is not both the 1. the Restatement Cir.1992), appears to be no au- and there Supreme have cit- Court and our circuit see, thority suggest the Alaska courts split approval, provisions ed its e.g., with (1986); provisions. Smith, to follow its declinе State v. 720 P.2d Naviga- Moreover, ers America v. Warrior & arbitration. Hoffman never ob- Gulf Co., jected to, tion acquiesced in, fact Active’s 1352-53, a preservation When of its pursue its RICO party justifiably believes that it has a separately, and to withhold that claim pursue a claim in a rather than from the state court aсtion. In view of the an arbitral it must be free to above, simply there is no basis for the validity test of that belief. majority’s conclusion that Active waived its right to arbitrate the RICO claim or that it Second, underly- the nexus of contracts prohibited was from splitting that claim off ing between Hoffman and Ac- from the remainder of the proceedings. recognizes litigant tive split that a will his Accordingly, the parties recognize, claim. As both the arbi- judicata not res as to the claim that Active tration clauses in those require contracts deliberately and expressly withheld without ‍​‌‌‌​​‌​‌​‌​‌‌‌​‌‌​‌​​‌‌‌‌‌‌​​​‌‌‌‌‌​‌‌​‌‌​‌‌‌‌​‍Thus, only arbitration of some claims. objection from Hoffman at the time it filеd contracts, drafting the parties must the state court action. have assumed that claims would be divided proceedings. between arbitration and court above, Aside from the I have another Accordingly, placed the burden on Hoff- disagreement fundamental majori with the pursuit man Active’s of claims ty’s apprоach. I believe that majority given two different fora should be little opinion fails to take into account the diffi any weight. culties in party’s involved decision wheth er to adjudicate arbitrate or a claim. Some earlier, As noted splitting Active’s claims are others are not. The exception claims also falls under the other is frequently law may change abstruse and general to the splitting anti-claim rule. during the course of proceedings, acquiesced in Active’s decision to happened in this case. The majority’s dis try separately. claim When position places all resulting the risk from agreement Hoffman and Aсtive reached an legal this uncertainty plaintiff, on the to consolidate all the claims in the Alaska person possessing legitimate claims. It im action, expressly re- poses penalty, the ultimate that of forfei agree- served the RICO claim from the ture, plaintiffs guess on “wrong”. who ment, stating that that claim re- “w[оuld] approach This plain does a disservice to main federal court.” Hoffman did not generally tiffs and is inconsistent with the object to this reservation when the other purpose dispute ultimate resolution—to claims were consolidated in state court. It resolve on the merits. Surow hardly should allowed do so nоw. Cf. Corp., itz v. Hilton Hotels reasons, For above I believe that the 851,15 (1966) 86 S.Ct. general rule splitting relied (“If procedure they rules work as should the majority simply inapplicable. judicial system, an honest and fair justified in seeking only permit, nearly but should as resolution of its RICO claim in the federal possible guarantee that fide com bоna attempt courts. Its to do so did not serve plaints adjudication be carried to an on the to waive its to arbitrate in the event merits.”); Gibson, Conley v. the federal court found that arbitration (1957) litigation required pro- rather than was the (“The reject approach Federal Rules pursue justified cedure. The pleading game of skill which justiciability belief in the presup- of a claim misstep by one counsel be decisive poses ability to arbitrate if the court outcome.”). Accordingly, I am com subject that the claim is to an determines pelled to dissent. provision. hap- That is what pened pursued justified here—Active be-

lief in justiciability

but, law, change after a the court subject

determined that the claim was

Case Details

Case Name: Hoffman Construction Company of Oregon, an Oregon Corporation v. Active Erectors and Installers, Inc., a Washington Corporation

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Jul 8, 1992

Citation: 969 F.2d 796

Docket Number: 90-35523

Court Abbreviation: 9th Cir.