Airbus DS Optronics GmbH v. Nivisys LLC et al

Filing 194

ORDER: IT IS ORDERED that Plaintiff's motion for partial summary judgment on Defendants' affirmative defenses, (Doc. 152 ), is hereby GRANTED, to the extent that Defendants' affirmative defenses seeking to collaterally attack the judgment obtained against Nivisys Industries in Maricopa County Superior Court, (Doc. 153 -13 at 2-3), are precluded as a matter of law. See attached Order for complete details. Signed by Senior Judge James A Teilborg on 5/2/2016. (KAL)

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WO 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Airbus DS Optronics GmbH, 10 Plaintiff, 11 ORDER v. 12 No. CV-14-02399-PHX-JAT Nivisys LLC, et al., 13 Defendants. 14 15 Pending before the Court is Plaintiff Airbus DS Optronics GmbH’s 1 motion for 16 partial summary judgment with respect to affirmative defenses pleaded by Defendants 17 Nivisys, LLC (“Nivisys”) and WWWT Enterprises, LLC (“WWWT”). 2 (Doc. 152). 18 Plaintiff contends that these affirmative defenses fail as a matter of law or, in the 19 alternative, are barred by the doctrine of res judicata because they seek to collaterally 20 attack a valid judgment obtained in prior litigation. (Id. at 2). Having reviewed the 21 parties’ filings and considered oral argument, the Court now rules on the motion. 22 23 24 25 26 27 28 1 On October 4, 2012, Plaintiff changed its name from Carl Zeiss Optronics GmbH to Cassidian Optronics GmbH. (Doc. 153-1 at 2). As of January 28, 2015, Plaintiff had again changed its name to Airbus DS Optronics GmbH. (Doc. 153-8 at 1-4, 12). Plaintiff is “a foreign corporation organized under the laws of the [c]ountry of Germany.” (Doc. 153-1 at 2). 2 Nivisys, WWWT, Nivisys Industries, LLC, (“Nivisys Industries”), and First Texas Holdings Corporation (“First Texas”) are the named Defendants in this matter. Nivisys Industries is a now-dissolved Arizona limited liability company. 1 I. 2 Plaintiff filed the instant action against Defendants in Maricopa County Superior 3 Court on October 28, 2014, which was thereafter removed to this Court pursuant to 28 4 U.S.C. § 1441(b) (2012). (Doc. 1). The core of the Second Amended Complaint (“SAC”) 5 is Plaintiff’s contention that Defendants are liable for a judgment previously obtained 6 against Nivisys Industries. (Doc. 112 at 5-7). The aforementioned judgment arose out of 7 a contract between Plaintiff and Nivisys Industries, in which Plaintiff agreed to 8 manufacture and supply a number of optic components to Nivisys Industries. (Doc. 153-1 9 at 3). After Nivisys Industries breached, Plaintiff filed suit in Stuttgart Regional Court, 10 Germany on May 29, 2012. (Doc. 153-6 at 2). The suit culminated in a default judgment 11 against Nivisys Industries for €748,750. (153-11 at 2-7). Plaintiff later filed suit against 12 Nivisys Industries in Maricopa County, 3 seeking to “recognize and enforce” the German 13 judgment, (Doc. 153-1 at 2-3), and on April 16, 2014, obtained judgment for 14 $1,269,290.05. (Doc. 153-13 at 2-3). 15 After the current matter proceeded to discovery, a dispute arose concerning certain 16 document production requests. (Doc. 116). Defendants pleaded a number of affirmative 17 defenses in their respective answers, and sought the production of documents to 18 substantiate these defenses. (Doc. 129 at 2-5). Plaintiff objected on the grounds that the 19 requests sought “information concerning issues fully resolved by two prior judgments,” 20 (Doc. 133 at 1-2), and subsequently filed a motion to strike Defendants’ affirmative 21 defenses pursuant to Federal Rule of Civil Procedure 12(f). (Doc. 136). 22 On December 7, 2015, 4 the Court found that the proper means to adjudicate the 23 24 25 26 27 3 As of January 23, 2014, Nivisys Industries had changed its name to N.I. Liquidation, LLC, and employed no personnel. N.I. Liquidation, LLC thereafter remained an Arizona LLC until its members submitted Articles of Termination to the Arizona Corporation Commission on August 1, 2014. The Articles of Termination were executed on August 21, 2014. 4 28 The Court held a hearing on December 2, 2015, during which the parties offered input on the pending discovery dispute, and Plaintiff withdrew its motion to strike. (Doc. 138). -2- 1 parties’ discovery dispute—and Plaintiff’s argument that certain of Defendants’ 2 affirmative defenses were barred as a matter of law—was by summary judgment, and 3 ordered Plaintiff to file a Fed. R. Civ. P. 56(f) motion. (Doc. 143 at 1-2). “Those of 4 Defendants’ affirmative defenses that d[id] not fail as a matter of law” would “define the 5 scope of what potentially discoverable evidence is relevant under [Fed. R. Civ. P.] 6 26(b)(1)” and allow the Court to “rule on the discovery dispute over Defendants[’] 7 request for ‘documents relating to the underlying dispute’ that culminated in a judgment 8 against Nivisys Industries, LLC.” (Doc. 143 at 2 (quoting Doc. 129 at 2)). 9 The motion has been fully briefed, and oral argument was heard on April 27, 10 2016. Having set forth the pertinent background, the Court turns to Plaintiff’s Rule 56 11 motion. 12 13 II. Legal Standard 14 Summary judgment is appropriate when “the pleadings, depositions, answers to 15 interrogatories, admissions on file, and any affidavits show that there is no genuine issue 16 as to any material fact and that the moving party is entitled to judgment as a matter of 17 law.” Assurance Co. of Am. v. Wall & Assocs. LLC of Olympia, 379 F.3d 557 (9th Cir. 18 2004) (citation omitted); see also Fed. R. Civ. P. 56(a). The movant bears the initial 19 burden of demonstrating to the Court the basis for and the elements of the causes of 20 action upon which the non-movant will be unable to establish a genuine issue of material 21 fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the 22 non-movant to establish the existence of a material fact in dispute. Id. The non-movant 23 “must do more than simply show that there is some metaphysical doubt as to the material 24 facts” by “com[ing] forward with ‘specific facts showing that there is a genuine issue for 25 trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) 26 (emphasis in original) (quoting Fed. R. Civ. P. 56(e) (1963) (amended 2010)). A dispute 27 about a fact is “genuine” if the evidence is such that a reasonable jury could return a 28 verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 -3- 1 (1986). The non-movant’s bare assertions, standing alone, are insufficient to create a 2 material issue of fact and defeat a motion for summary judgment. Id. at 247–48. But in 3 the summary judgment context, the Court construes all disputed facts in the light most 4 favorable to the non-moving party. Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir. 5 2004). 6 III. 7 “The constitutional mandate of full faith and credit requires that a judgment 8 validly rendered in a state court be accorded the same validity and effect in every other 9 state’s courts as it had in the state rendering it.” Pioneer Fed. Sav. Bank v. Driver, 804 10 P.2d 118, 121 (Ariz. Ct. App. 1988) (citing Lofts v. Superior Court, 682 P.2d 412, 415 11 (Ariz. 1984)); U.S. CONST. art. 4 § 1. “The purpose and effect of this clause is to 12 nationalize the doctrine of res judicata,” and it “is effectuated when states recognize a 13 sister state’s final judgments as binding and conclusive.” Fremont Indem. Co. v. Indus. 14 Comm’n, 697 P.2d 1089, 1092 (Ariz. 1985) (citing Durfee v. Duke, 375 U.S. 106, 109 15 (1963)). 16 “The preclusive effect of a state court judgment in a subsequent federal lawsuit 17 generally is determined by the full faith and credit statute, which provides that state 18 judicial proceedings ‘shall have the same full faith and credit in every court within the 19 United States . . . as they have by law or usage in the courts of such State . . . from which 20 they are taken.’” Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 21 380 (1985) (quoting Title 28 U.S.C. § 1738 (1982)). Mechanically, “[t]his statute directs 22 a federal court to refer to the preclusion law of the State in which judgment was 23 rendered.” Id. (citation omitted); see also Kremer v. Chemical Construction Corp., 456 24 U.S. 461, 481-82 (1982) (noting that “[i]t has long been established that § 1738 does not 25 allow federal courts to employ their own rules of res judicata in determining the effect of 26 state judgments”). “Section 1738 embodies concerns of comity and federalism that allow 27 the States to determine, subject to the requirements of the statute and the Due Process 28 Clause, the preclusive effect of judgments in their own courts.” Id. Accordingly, the -4- 1 Court turns to the preclusion law of Arizona. Hannah v. GMC, 969 F. Supp. 554, 559 (D. 2 Ariz. 2006) (citation omitted); Nourbakhsh v. Gayden, 162 B.R. 841, 844 (9th Cir. Bankr. 3 Jan. 10, 1994). 4 Under Arizona law, a “properly filed foreign judgment has the same effect and is 5 subject to the same procedures as a final judgment in the state of Arizona.” A.R.S. § 12- 6 1701 et seq.; Pioneer Fed. Sav. Bank, 804 P.2d at 120 n.3 (citation omitted). And a valid 7 default judgment has the same preclusive effect “as a judgment on the merits where the 8 issues were litigated.” A. Miner Contr., Inc. v. Toho-Tolani Cty. Improvement Dist., 311 9 P.3d 1062, 1070 (Ariz. Ct. App. 2013) (quoting Norriega v. Machado, 878 P.2d 1386, 10 1391 (Ariz. Ct. App. 1994)); see also Restatement (Second) of Judgments § 18, cmt. a. 11 (noting that “[i]t is immaterial whether the judgment was rendered upon a verdict or upon 12 a motion to dismiss or other objection to the pleadings or upon consent, confession, or 13 default”). Preclusion is not absolute, however. There are certain circumstances where a 14 foreign judgment shall not be given recognition and effect. Specifically, a foreign 15 judgment “may be attacked if the rendering court lacked jurisdiction over person or 16 subject matter, or judgment was obtained through lack of due process or was the result of 17 extrinsic fraud, or if the judgment was invalid or unenforceable.” Pioneer Fed. Sav. Bank, 18 804 P.2d at 121 (citing Phares v. Nutter, 609 P.2d 561, 563 (Ariz. 1980)); see also 19 Bebeau v. Berger, 529 P.2d 234, 235 (Ariz. 1974). The Arizona Court of Appeals has 20 also noted that full faith and credit may not be extended where “‘such recognition or 21 enforcement . . . would involve an improper interference with important interests of the 22 sister state.’” Jones v. Roach, 575 P.2d 345, 348 n.2 (Ariz. Ct. App. 1977) (quoting 23 Restatement 2d. of Conflict of Laws, § 103)). 24 Turning to the particulars of this case, it is undisputed that on May 29, 2012, 25 Plaintiff filed suit against Nivisys Industries in Stuttgart Regional Court for breach of 26 contract. This suit culminated in a default judgment entered in the amount of €748,750 on 27 July 3, 2013. (Doc. 153-11 at 2-7). On December 20, 2013, Plaintiff filed suit in 28 Maricopa County Superior Court to “recognize and enforce the [Stuttgart Regional -5- 1 Court] Judgment against Nivisys [Industries]” as an Arizona judgment. 5 (Doc. 153-1 at 2- 2 4). On April 16, 2014, pursuant to Ariz. R. Civ. P. 55(b)(1), the Superior Court 3 recognized the German judgment as “valid and fully enforceable as a Judgment in the 4 State of Arizona” and awarded Plaintiff $1,269,290.05. (Doc. 153-13 at 2-3). Nivisys 5 Industries was a recognized corporate entity until August 21, 2014. (Doc. 166 at 10). The 6 result is a presumptively valid judgment against Nivisys Industries. See Sonya C. v. 7 Arizona School for Deaf & Blind, 743 F. Supp. 700, 709 (D. Ariz. 1990) (citing Coshatt 8 v. Calmac Manufacturing Corp., 602 P.2d 845, 847 (Ariz. Ct. App. 1979)). 9 Defendants have made no effort to establish that the Superior Court lacked 10 jurisdiction over person or subject matter, that the judgment was the result of extrinsic 11 fraud, or that the judgment is otherwise invalid or unenforceable. Nor do defendants 12 argue that Nivisys Industries was not afforded requisite due process protections. Rather, 13 Defendants contend that they cannot be bound to the judgment, as the Full Faith and 14 Credit Clause and 28 U.S.C. § 1738 “may not be used to bind a litigant to a prior 15 determination to which he was a stranger,” Fremont Indem. Co., 697 P.2d at 1093, and 16 that such a finding would violate due process. Generally, one “who is not a party to an 17 action is not bound by the judgment in that action.” State ex rel. Thomas v. Grant, 213 18 P.3d 346, 350 (Ariz. Ct. App. 2009) (citation omitted). Defendants’ argument, however, 19 is misplaced. 20 21 22 23 24 25 26 27 28 5 “Arizona has adopted the Revised Uniform Enforcement of Foreign Judgments Act” (the “Act”), A.R.S. § 12-1701 et seq., which “provides that foreign judgments may be domesticated (converted into Arizona judgments) by filing a copy of an authenticated foreign judgment.” Eschenhagen v. Zika, 696 P.2d 1362, 1363 (Ariz. Ct. App. 1985) (citation omitted); see also Citibank (S.D.), N.A. v. Phifer, 887 P.2d 5, 6 (Ariz. Ct. App. 1994) (noting that the Act “does not create substantive rights” but merely “creat[es] procedures for enforcing rights conferred by the Full Faith and Credit Clause of the United States Constitution”). The Superior Court’s judgment did not state whether it relied on the Act as the basis for domestication, but the Act only applies to orders “of a court of the United States or of any other court which is entitled to full faith and credit in this state.” A.R.S. § 12-1701. As discussed infra, judgments from courts in foreign nations are generally recognized based on principles of comity. -6- 1 Defendants’ liability in this case—if any—has yet to be determined. Here, 2 Plaintiff has alleged distinct and independent causes of action (successor liability, 3 fraudulent transfers, and improper lender conduct) to recover against Defendants, 4 separate corporate entities. This is not a case where liability has been established and 5 wholly unrelated parties have been bound to the same judgment. See Richards v. 6 Jefferson County, 517 U.S. 793, 798-99 (1996) (citation omitted) (concluding that 7 Alabama’s application of res judicata violated the Fourteenth Amendment where claims 8 were adjudicated and unrelated parties were then “bound by a judgment in personam in a 9 litigation in which [they were] not designated as a party or to which [they had] not been 10 made a party by service of process”). This is not a case in which an insurer and 11 indemnitor is disputing the amount that it must insure an indemnitee against. Falcon v. 12 Beverly Hills Mortgage Corp., 815 P.2d 896, 899 (Ariz. 1991). Nor is this a case in 13 which the parent corporation’s liability was at stake in the prior litigation. Zenith Radio 14 Corp. v. Hazeltine Research, 395 U.S. 100, 110 (1969). And this is not a case where 15 claims of successor liability and alter ego were decided in the prior litigation by simple 16 amendment to a default judgment without providing notice and the opportunity to be 17 heard to the corporation that was subject to derivative liability. Katzir’s Floor & Home 18 Design, Inc. v. M-MLS.COM, 394 F.3d 1143 (9th Cir. 2004). The Court also finds that 19 this is not a case where “[t]here is a clear and convincing need for a new determination of 20 the issue” of whether Nivisys Industries breached a contract with Plaintiff due to “special 21 circumstances,” because Defendants did not have “an adequate opportunity or incentive 22 to obtain a full and fair adjudication in the initial action.” See Hullett v. Cousin, 63 P.3d 23 1029, 2013 (quoting Restatement (Second) of Judgments 28(5) (1982)) (finding that it 24 would be inequitable to bind limited partners of the same firm to a prior default judgment 25 entered against the firm and general partner on the issue of whether the defendants could 26 raise a statute of limitations defense). 6 27 6 28 The Court notes that this case—decided in 2003—was brought to the Court’s attention well beyond the deadline for Defendants to file their opposition to Plaintiff’s motion for partial summary judgment under LRCiv 7.2(c). -7- 1 Nivisys Industries’ members made the volitional decision not to contest two 2 actions—one in Stuttgart Regional Court, Germany, and the other in Maricopa County, 3 Arizona—for breach of contract. Defendants have failed to demonstrate 7 that due process 4 demands that they be permitted—in a case alleging claims 8 of successor liability, 5 fraudulent transfer of assets, and improper lender behavior—to attack the validity of a 6 judgment for breach of contract obtained in a separate action against Nivisys Industries. 7 Absent evidence to the contrary, the Maricopa County judgment “enjoys a presumption 8 of regularity,” De Noyelles v. De Noyelles, 703 P.2d 584, 586 (Ariz. Ct. App. 1985) 9 (citation omitted), and there is no genuine dispute as to whether the judgment is void. See 10 Sonya C., 743 F. Supp. at 709 (citation omitted) (noting that under Arizona law a party 11 must establish that extrinsic fraud was involved, or that the rendering court “lacked 12 personal jurisdiction, subject matter jurisdiction, jurisdiction to enter the particular order 13 involved, or if the court acted in excess of its jurisdiction” to show that a presumptively 14 valid judgment is void). 15 Defendants may assert all available defenses to deny Plaintiff’s right to recover for 16 the claims asserted in the instant matter. But Defendants may not attack the validity or 17 amount of the Maricopa County judgment 9 against Nivisys Industries in the amount of 18 19 20 21 22 23 24 25 26 27 28 7 The Court did uncover one instance where the Arizona Court of Appeals noted that the doctrine of claim preclusion does not apply to alleged affirmative defenses “because affirmative defenses are not claims.” Airfreight Express, Ltd. v. Evergreen Air Ctr., Inc., 158 P.3d 232 (Ariz. Ct. App. 2007) (citation omitted). But in Airfreight Express, the Court of Appeals was addressing claims raised in the second action that were masquerading as affirmative defenses to a counterclaim in the first action. Id. Moreover, Airfreight Express involved prior litigation that resulted in “a dismissal without prejudice,” which the Court of Appeals later noted simply does not constitute “an adjudication on the merits and does not bar a second action under the doctrine of claim preclusion.” Goodman v. Greenberg Traurig, LLP, 2011 Ariz. App. Unpub. LEXIS 564, at *17-18 (Ariz. Ct. App. Feb. 3, 2011) (citations omitted). Airfreight Express is thus distinguishable from the current matter. 8 Pending separately are three motions to dismiss filed by Defendants, (Doc. 117; Doc. 119; Doc. 127), that are addressed by separate Order. 9 The Court’s conclusion would be the same if it were to have examined the -8- 1 $1,269,290.05. 2 The Court finds that Plaintiff is entitled to summary judgment on those affirmative 3 defenses 10 pleaded by Defendants that seek to challenge the validity of the April 16, 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 preclusive effects of the German judgment. See Yahoo! Inc. v. La. Ligue Contre Le Racisme, 433 F.3d 1199, 1212-13 (9th Cir. 2006) (citations omitted) (noting that “[t]here is currently no federal statute governing recognition of foreign judgments in federal courts” and that “enforceability of judgments of courts of other countries is generally governed by the law of the state in which enforcement is sought”); United States v. Buruji Kashamu, 656 F.3d 679 (7th Cir. 2011) (noting that when determining the preclusive effect of a judgment issued by a foreign nation’s court the “domestic court is not bound by the full faith and credit clause or statute to comply with the foreign jurisdiction’s rules” and should instead rely on the doctrine of comity). Although the Court was unable to locate an example of Arizona appellate courts analyzing the domestication of judgments from a foreign nation’s courts, Arizona courts have previously applied the doctrine of comity to tribal court judgments, which the Arizona Supreme Court has described as synonymous to those of a foreign nation’s. In re Lynch’s Estate, 377 P.2d 199, 201 (Ariz. 1962); Brown v. Babbit Ford, Inc., 571 P.2d 689, 695 (Ariz. Ct. App. 1977). The Arizona Supreme Court has also relied on Ninth Circuit comity jurisprudence, In re General Adjudication of All Rights to Use Water in the Gila River System & Source, 127 P.3d 882, 898-900 (Ariz. 2006), and the Ninth Circuit has noted that generally “our courts will enforce foreign judgments that arise out of proceedings which comport with basic principles of due process.” Bank Melli Iran v. Pahlavi, 58 F.3d 1406, 1413 (9th Cir. 1995) (noting that “[i]t has long been the law of the United States that a foreign judgment cannot be enforced if it was obtained in a manner that did not accord with the basics of due process”); see also A. v. Bazurto, 528 P.2d 178, 179-80 (Ariz. Ct. App. 1974) (noting that Arizona courts would follow the “modern trend in the United States” to give a judgment rendered by a court of a foreign nation preclusive effect provided that due process protections exist and the judgment is not the product of extrinsic fraud). Here, Defendants have argued that Plaintiff attempted to bind them “to a prior determination” to which they were not an interested party. Defendants do not attack the due process protections afforded Nivisys Industries in the Stuttgart Regional Court proceedings. It follows that Defendants have failed to show that the foreign judgment at issue “did not accord with the basics of due process.” Bank Melli Iran, 58 F.3d at 1413. 10 WWWT argues that it may raise equitable defenses, such as the unclean hands doctrine, as Plaintiff has asserted equitable claims in the SAC, such as successor liability and piercing the corporate veil. (Doc. 162 at 6). While WWWT alludes to multiple equitable defenses, it only addresses the doctrine of unclean hands. As discussed supra, Defendants may raise any defense available to “deny the plaintiff’s right to recover,” Ramirez v. Ghilotta Bros. Inc., 941 F.Supp.2d 1197, 1204 (N.D. Cal. 2013), with respect -9- 1 2014, judgment against Nivisys Industries. Accordingly, to the extent the discovery 2 requests and objections thereto were premised on Defendants’ attempt to do discovery on 3 its affirmative defenses, that discovery will not be permitted. If after reviewing this Order 4 the parties still have any discovery disputes stemming from the December 23, 2015, 5 discovery dispute hearing, they shall set up a discovery dispute conference call, as 6 detailed in the Court’s Scheduling Order within fourteen (14) days of this Order. 7 IV. 8 9 For the aforementioned reasons, 10 IT IS ORDERED that Plaintiff’s motion for partial summary judgment on 11 Defendants’ affirmative defenses, (Doc. 152), is hereby GRANTED, to the extent that 12 Defendants’ affirmative defenses seeking to collaterally attack the judgment obtained 13 against Nivisys Industries in Maricopa County Superior Court, (Doc. 153-13 at 2-3), are 14 precluded as a matter of law. 15 Dated this 2nd day of May, 2016. 16 17 18 19 20 21 22 23 24 25 26 27 28 to the claims asserted in this matter. But the Court notes that a successful unclean hands defense must establish that the “plaintiff’s conduct ‘related to the very activity that is the basis of his claim’” is inequitable or unconscionable. First Ascent Ventures, Inc. v. DLC Dermacare LLC, 312 Fed. Appx. 60, 61 (9th Cir. 2009) (quoting Barr v. Petzhold, 273 P.2d 161, 165-66 (Ariz. 1954)) (emphasis added); see also Smith v. Neely, 380 P.2d 148, 149 (Ariz. 1963) (noting that for unclean hands to be applicable, “[t]he dirt upon his hands must be his bad conduct in the transaction complained of”) (emphasis removed). Defendants may not challenge or look behind the judgment rendered against Nivisys Industries with allegations of unclean hands as to the original contract action in Germany. - 10 -

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