Amerifactors Financial Group LLC v. Windstream Supply LLC

Filing 59

ORDER granting in part and denying in part 41 Motion for Summary Judgment and granting in part and denying in part 46 Motion for Summary Judgment. Signed by Judge D. P. Marshall Jr. on 8/29/13. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
AMERIFACTORS FINANCIAL GROUP LLC

v.

PLAINTIFF

No. 4:12-cv-202-DPM

WINDSTREAM SUPPLY LLC

DEFENDANT
ORDER

The question at the moment is whether the Oklahoma default judgment
Windstream got against Hal-Tee precludes Amerifactors' s current breach of
contract claim against Windstream.
1. Amerifactors is Hal-Tee's assignee twice removed. Hal-Tee and
Windstream made a contract, agreeing that Hal-Tee would provide network
services on Windstream construction projects. Hal-Tee assigned its rights in
approximately $380,000.00 of receivables from Windstream to Amerifactors' s
predecessor in interest. Then, in connection with a project in Oklahoma, HalTee did not pay some subcontractors. They sued Hal-Tee and Windstream.
After Hal-Tee declined to defend and indemnify, Windstream cross-claimed
against Hal-Tee. No answer or a responding cross-claim was filed by Hal-Tee.
The Oklahoma trial court entered a final judgment by default for Windstream.

The judgment's text is reproduced in the margin.* The judgment adjudicated
Windstream' s cross-claim for set-off based on all amounts it ended up paying
subcontractors. It did not adjudicate Windstream' s more general cross-claim
for breach of contract, which was dismissed without prejudice. Hal-Tee later

The Court, having reviewed the cross claim, summons, return of service
and court file, finds that:
1. Hal-Tee Construction, Inc. ("Hal-Tee") was validly served with the cross
claim and summons on November 4, 2009.
2. Hal-Tee failed to enter an appearance, file an answer or otherwise plead
and its time for doing so has expired.
3. Hal-Tee is in default and has thus admitted the substantive allegations of
the cross claim.
4. By way of this Final Default Judgment, Windstream dismisses without
prejudice the claims set forth against Hal-Tee in Count I of the cross claim.
5. The Court being fully advised finds that the allegations of Windstream
Supply LLC' s ("Windstream") cross claim are deemed true as therein set forth
and that Windstream is entitled to judgment as set forth below.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that (a) HalTee is unable or unwilling to pay its subcontractors, (b) Windstream may set off
any amounts paid by Windstream to subcontractors of Hal-Tee from amounts
owed to Hal-Tee by Windstream under the Master Contractor Agreement, and
(c) Windstream may set off any amounts paid by Windstream to subcontractors
of Hal-Tee's use of subcontractors from amounts owed to Hal-Tee under the
Master Contractor Agreement.
IT IS FURTHER ORDERED ADJUDGED AND DECREED that
Windstream have and recover judgment from Hal-Tee for its reasonable attorney
fees incurred herein in the amoun of $2,000 and its reasonable costs incurred
herein in the amount of $297.50.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, despite the
fact that other parties and claims remain pending, there is no just reason for
delay and that the Court's entry of Default Judgment on the Cross Claim on
behalf of Windstream and against Hal-Tee is a final judgment.
*

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tried to get the judgment set aside for lack of subject matter jurisdiction. That
effort failed. No one appealed anything. Hal-Tee eventually assigned another
approximately $156,000.00 in Windstream receivables, and all its rights in the
Hal-Tec/Windstream contract, to Amerifactors's predecessor.
2. This case is Amerifactors' s suit against Windstream for breach of the
Hal-Tec/Windstream master contract for network services. Amerifactors
seeks summary judgment on Windstream' s defense that, as a matter of claim
preclusion, the Oklahoma judgment bars Amerifactors' s breach claim.
Windstream, for its part, seeks summary judgment by cross-motion that its
Oklahoma judgment is res judicata- a nuclear preclusion defense in this case.
The parties' helpful statements, and supporting materials (especially the
entire certified record in the Oklahoma case), show that the material facts are
undisputed. Oklahoma law governs the preclusive effect of Windstream' s
Oklahoma judgment against Hal-Tee. Hintz v. ]P Morgan Chase Bank, N.A.,
686 F.3d 505,509 (8th Cir. 2012).
3. The Oklahoma judgment is good as far as it goes but no further. The
Oklahoma courts would give it preclusive effect on the issue actually
litigated- Windstream' s right to set off payments made to subcontractors for

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Hal-Tee's benefit, but not on the general breach claim that Amerifactors now
asserts in Hal-Tee's stead.
First, cross-claims are not compulsory, either in Oklahoma or in general.
The governing statute says that they

~~may"

be made. 12 O.P.C. § 2013(G).

The statute's commentary explains. u Cross-claims are permissive rather than
compulsory and are not barred if not asserted in a previous action."
Committee Comment to Section 2013. The Supreme Court of Oklahoma has
been clear about this.

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The Legislature's use of the term 'may' indicates that

the decision to assert a cross-claim is permissive in nature. Failure to assert
such a claim will not bar a subsequent suit even if the claim arose out of the
transaction or occurrence that is the subject of the original action." Roach v.

Atlas Life Ins. Co., 769 P.2d 158, 163 (Okla. 1989). Change the name and claim
discussed in the Roach case and this precedent answers the question presented
here.

u

Although [Hal-Tee] might have asserted [breach of contract] through

the use of the cross-claim statute, failure to assert the right did not bar a
subsequent action for [breach of contract]." Ibid. This holding accords with
the settled understanding about cross-claims and preclusion. E.g., WRIGHT &
MILLER, FEDERAL PRACTICE AND PROCEDURE§ 1431 at pp. 275-76.

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Second, the answer is the same as a matter of Oklahoma preclusion
doctrine. Res judicata in its claim precluding aspect, as Windstream argues,
covers issues that were raised or could have been raised between the parties
(or their privies) and that were reduced to final judgment. Sill v. Hydrohoist
International, 262 P.3d 377,381-82 (Okla. Civ. App. 2011). But Windstream's

judgment does not end this case because Oklahoma narrowly interprets to the
could-have-been-raised aspect of the doctrine.
The general expression in reported cases, that the former judgment is
conclusive of every matter which the parties might have litigated in the
case, is misleading. What is meant by this expression is that a
judgment is conclusive upon the issues as there disclosed by the
pleadings, instructions of the court, the verdict or findings and the
scope and meaning of the judgment is often determined by the
pleadings or findings. So far as those issues are concerned, they are not
subject to review in another litigation.

Wilson v. Vance, 240 P.2d 108, 110-11 (Okla. 1952). Current doctrine in

Oklahoma remains the same. E.g., Dorchestor Hugoton v. Dorchester Master,
LLC, 925 P.2d 1213, 1220-21 (Okla. Civ. App. 1996) (citing Wilson with

approval).
3. The Oklahoma Court had subject matter jurisdiction. It rejected HalTee's belated attack on the judgment on this ground. Hal-Tee had notice of

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Windstream' s cross-claim. But it waived the parties' selection of a Pulaski
County, Arkansas court in their master contract by not appearing to defend
the cross-claim and disputing the forum. Just as parties can pick a forum by
agreement, so long as their choice is consistent both with the chosen court's
power and concerns of fairness and reasonableness, parties can later waive
their choice by word or by deed. At bottom, forum selection and waiver are
primarily matters of choice. See generally Servewell Plumbing, LLC v. Summit
Contractors, Inc., 362 Ark. 598, 603-08, 210 S.W.3d 101, 106-09 (2005) (forum

selection); Adams v. Nationsbank, 74 Ark. App. 384, 390, 49 S.W. 3d 164, 168
(2001) (waiver). No in rem issue was presented. No contention is made that
the Oklahoma court was acting beyond its power in the Oklahoma-based
litigation; it was not. Independent School District 1 of Oklahoma County v. Scott,
15 P.3d 1244,1248 (Okla. Civ. App. 2000). Windstream's judgment is a final
judgment on the merits entitled to preclusive effect. u A judgment by default,
based upon personal service of summons on one of the defendants, is as
conclusive against such defendant, upon every matter admitted by the
default, as any other final judgment." Rhodabarger v. Childs, 250 P. 489,490
(Okla. 1926).

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Hal-Tee's failure to respond with a cross-claim against Windstream for
breach of contract does not preclude Amerifactors from pressing that claim
now as Hal-Tee's downstream assignee. The Oklahoma judgment precludes
Amerifactors only from relitigating the thing decided: Windstream is entitled
to set off amounts paid to Hal-Tee subcontractors. Unless that amount
exceeds the approximately $156,000.00 in receivables Hal-Tee assigned postjudgment, no real dispute exists on the privity issue.

*

*

*

Amerifactors' s motion for summary judgment, N2 41, is granted in part
and denied in part. Windstream' s cross motion, N2 46, is likewise granted in
part and denied in part. Windstream' s passing contract-ambiguity argument
is too thinly developed and supported for resolution now; both motions are
denied without prejudice on that point. Windstream prevails on the matter
actually decided between Hal-Tee and Windstream by the Oklahoma
judgment but not against Amerifactors' s whole case.
So Ordered.
D.P. Marshall Jr. ?"
United States District Judge

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