Robotic Vision Technologies LLC et al v. Shafi
ORDER denying 15 Motion for Reconsideration. Signed by District Judge Victoria A. Roberts. (CPin)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
Counter-Plaintiff/Third Party Plaintiff,
Case No: 09-10454
Honorable Victoria A. Roberts
FREDERICK WEIDINGER and
Third Party Defendant/Counter Defendant.
ROBOTIC VISION TECHNOLOGIES, LLC, and
FREDERICK WEIDINGER, an individual,
Case No: 11-12909
Honorable Victoria A. Roberts
ORDER DENYING DEFENDANT’S
MOTION TO RECONSIDER
Before the Court is Defendant Adil Shafi’s Motion to Reconsider the Court’s
December 19, 2011 Order Granting in Part and Denying in Part his Motion to Dismiss.
(Doc. # 15).
The Court DENIES the motion.
On December 19, 2011, this Court granted in part and denied in part Defendant/
Counter-Plaintiff Shafi’s Motion to Dismiss Plaintiffs/Counter-Defendants Robotic
VISION Technologies, LLC’s (“RVT”) and Frederick Weidinger’s action against him.
The Court held that Count I of the 2011 Complaint, alleging Breach of Share Purchase
Agreement Warranties, was barred by res judicata because it could have been litigated
in a 2009 action between RVT’s privy – Braintech – and Shafi. In 2009, Braintech sued
Shafi in this Court based on diversity of citizenship. Braintech sought rescission of
multiple contracts (“Sale Agreements”) between the two. The agreements culminated
in the sale of Shafi’s two companies, SHAFI, Inc. (“SI”) and SHAFI Innovation, Inc.
(“SII”), and his product, Reliabot, to Braintech and the employment of Shafi as Chief
Operating Officer (“COO”) at Braintech. On June 3, 2010, this Court dismissed the
2009 action for failure to prosecute.
Although the Court dismissed Count I of the 2011 Complaint, it denied Shafi’s
motion to dismiss Counts II, III, and IV, alleging Breach of Non-Competition Agreement,
Defamation, and Unfair Competition. The Court applied federal res judicata principles
to the successive federal diversity jurisdiction case, and held that its decision on the
merits on the 2009 Complaint did not preclude these claims because they could not
have been raised when the 2009 Complaint was filed, although they did develop before
the action was dismissed. Shafi now asks the Court to reconsider that order and
dismiss RVT’s entire 2011 Complaint on res judicata grounds.
STANDARD OF REVIEW
A court grants reconsideration only if the movant demonstrates a “palpable
defect by which the court and the parties and other persons entitled to be heard on the
motion have been misled [and] that correcting the defect will result in a different
disposition of the case.” E.D. Mich. LR 7.1(h)(3). If the movant merely presents the
same issues the court already ruled on, the motion will be denied. Id. A “palpable
defect” is one that is “obvious, clear, unmistakable, manifest, or plain.” Ososki v. St.
Paul Surplus Lines Ins. Co., 162 F.Supp.2d 714, 718 (E.D. Mich. 2001).
Shafi says the Court clearly erred by applying federal, rather than state, res
judicata law. He says, under Michigan’s broad approach to claim preclusion, Counts II,
III, and IV of the 2011 Complaint are barred. He says Michigan res judicata law (unlike
its federal counterpart) requires a party to amend its complaint when it discovers facts
during the pendency of the action that support additional claims. He says a letter from
Braintech’s former counsel, James VandeWyngearde, reveals that Braintech knew it
had claims for breach of non-competition agreement, defamation, and unfair
competition prior to the Court’s June 3, 2010 dismissal of the 2009 Complaint. Shafi
says, under Michigan law, Braintech was required to supplement its 2009 Complaint
when it learned of these claims and its failure to do so bars the claims now based on res
Supreme Court precedent supports Shafi’s argument. See Taylor v. Sturgell,
553 U.S. 880, 891 n. 4 (2008) (citing Semtek Int’l Inc. v. Lockheed Martin Corp. 531
U.S. 497, 508 (2001)) (the preclusive effect of a federal court judgment in a diversity
case is determined by federal common law and federal common law incorporates the
rules of preclusion applied by the State in which the rendering court sits). However, this
error does not require reversal under E.D. Mich. LR 7.1(h)(3); correcting the defect will
not result in a different disposition of the case. Even applying Michigan’s broad res
judicata principles, Counts II, III, and IV of Plaintiffs’ Complaint are not precluded.
In Michigan, res judicata only bars a subsequent action if the claims arise from
the “same transaction” as those of the first. Adair v. State of Michigan, 470 Mich. 105,
125, 680 N.W.2d 386 (2004). There must be a connection, or sufficient relationship,
between the claims raised in the different suits – such as a continuing pattern or course
of conduct – for the former action to preclude the latter. See, e.g., Buck v. Thomas M.
Cooley Law School, 597 F.3d 812, 817 (6th Cir. 2010) (“[U]nder Michigan law, a plaintiff
has a duty to supplement her complaint with related factual allegations that develop
‘during the pendency of’ her state suit or have them barred by res judicata.”) (emphasis
added); Dubuc, 312 F.3d at 751 (“When, as here, it is obvious that the alleged ongoing
retaliation is actually the defendant continuing on the same course of conduct, which
has previously been found by a court to be proper, a subsequent court must conclude
that the plaintiff is simply trying to relitigate the same claim.”) (emphasis added).
The court must ask whether “a single group of operative facts give[s] rise to the
assertion of relief.” Adair, 470 Mich. at 124 (citation and quotation marks omitted). In
Adair, the Michigan Supreme Court explained, “‘Whether a factual grouping constitutes
a transaction for purposes of res judicata is to be determined pragmatically, by
considering whether the facts are related in time, space, origin or motivation, and
whether they form a convenient trial unit.’” 470 Mich. at 125 (quoting 46 Am. Jur. 2d,
Judgments 533, p.801) (emphasis in Adair). Therefore, the transactional approach
does not require the plaintiff to bring all claims it has against a defendant that may
accrue before entry of final judgment, only those that are factually related. Banks v. Lab
Lansing Body Assembly, 271 Mich. App. 227, 231-32, 720 N.W.2d 756 (2006)
(cautioning against conflating the phrase “claims arising out of the same transaction”
with “all claims that accrue before entry of a final award”); see also Elder v. Harrison
Twp., 786 F.Supp.2d 1314, 1327 (E.D. Mich. 2011) (res judicata bars claims arising
from the same transaction, not all claims that accrue before entry of final judgment).
Applying these state law principles to the facts of this case, res judicata is
inapplicable to Counts II, III, and IV of Plaintiffs’ 2011 Complaint. The claims in the two
suits are not temporally related. The 2009 action arose from Shafi’s conduct during
2008, when he executed the Sale Agreements with Braintech and began working as
COO there. These Counts arise from Shafi’s unfair competition with, and defamation of,
Braintech and RVT in 2009 and 2010. While this time difference is not dispositive, it is a
relevant consideration. See, e.g., McCoy v. Michigan, 369 Fed. Appx. 646, 651 (6th Cir.
2010) (no transactional relatedness between the state court action and the subsequent
federal litigation where the events in the state court litigation were “far removed
temporally” from the later case).
Moreover, a single group of operative facts does not give rise to the asserted
right to relief. Braintech’s asserted right to relief in the 2009 action arose from
statements Shafi made to induce Braintech to purchase his companies, as well as his
dereliction of job duties while employed at Braintech. Shafi’s material
misrepresentations and fraudulent statements about the quality and market-revenue5
readiness of Reliabot, and the financial indebtedness and projected revenue of SI and
SII, were the primary allegations of that case. (See Doc. # 9-2; Def. Ex. A, 2009
Michigan Complaint). On the other hand, Counts II, III, and IV of the 2011 action allege
breach of non-competition agreement, defamation, and unfair competition arising from
Shafi’s alleged misconduct in connection with his current employment at Advenovation
and Aptura and his interactions with parties other than Braintech (or RVT) within the
vision-guided robotics and machine vision systems industries. (See Doc. # 9-3; Def. Ex.
B, 2011 Virginia Complaint). They are not tied to the allegations that Shafi fraudulently
induced Braintech into purchasing SI and SII and failed to perform his COO duties.
The Sixth Circuit’s opinion in McCoy is persuasive and instructive. There, the
court applied Michigan res judicata law and held that res judicata did not bar a plaintiff’s
2006 federal action despite the plaintiff’s 1999 action in state court against the same
defendants. McCoy, 369 Fed. Appx. at 649. The court observed:
[A]lthough the state-court litigation and the instant case both involve
claims of discrimination and retaliation, they neither resulted from nor are
they tied to the same MDOC actions. The gravamen of McCoy’s federal
complaint is that his 2004 termination and the activities and complaints
surrounding that termination, which took place from June 2004 onward,
are, despite everything that may have occurred previously, themselves
actionable. In essence, the origin of the two claims is simply not the
same. Cf. Brownridge [v. Michigan Mut. Ins. Co., 115 Mich. App. 745, 321
N.W.2d 798, 799 (1982)] (“Since both actions arose out of the same
discharge from employment, both actions arose out of the same
transaction, both actions involved points which properly belonged to the
subject of litigation, and both involved the same matter in issue.”
(alteration and quotation marks omitted)); Young [v. Twp. of Green Oak,
471 F.3d 674, 681 (6th Cir. 2006)] (holding that res judicata properly
barred claims based on an employer’s decision to terminate an employee
because the termination “was not a fresh act of discrimination”; rather “it
was the same decision” not to allow the employee to return to work that
the employee had challenged previously); Cemer v. Marathon Oil Co., 583
F.2d 830, 832 (6th Cir. 1978) (“Both the first and the second suits seek to
remedy a single alleged wrong[, which was] the discharge of Cemer by
McCoy, 369 Fed. Appx. at 651.
The origin of the 2009 and 2011 claims is simply not the same. This 2011
Complaint alleges “new and independent claims” that relate to Shafi’s conduct long after
the Sale Agreements at issue in 2009 were finalized, and after Shafi left Braintech and
formed a new company, Advenovation. See McCoy, 369 Fed. Appx. at 651 (“Although
Michigan employs a broad view of res judicata, we do not believe that the preclusion of
claims that could have been resolved in the previous litigation necessarily includes new
and independent claims that arise after the original pleading in the first suit has been
In his original motion, Shafi urged that because “[t]he majority of facts in the 2009
case were copied and pasted to the complaint in the 2011 case,” the 2011 Complaint
“unquestionably arose from the transaction, or series of connected transactions, out of
which the 2009 action arose.” (Doc. # 9 at 13, 14). This reasoning is unavailing; the
McCoy court stated, “mere background information” in a complaint about the
relationship between the parties, that covers the time period and describes some of the
incidents alleged in a former complaint, does not mean the two complaints have the
same point of origin or comprise the same transaction. McCoy, 369 Fed. Appx. at 651.
Likewise, the motivation underlying the 2009 and 2011 suits is different. In 2009,
Braintech was motivated by Shafi’s false statements and deceptive conduct about his
companies and products; it desired to no longer be associated with those companies or
have an obligation to pay him or his creditors. Now, Plaintiffs are motivated by Shafi’s
defamatory statements about RVT and Braintech and his unlawful competition with
RVT; they are concerned that Shafi’s conduct will hurt their reputation and ability to
compete in the marketplace.
The McCoy court dismissed an argument similar to the one Shafi now makes,
that Braintech was required to amend its 2009 Complaint to allege unfair competition,
breach of non-competition agreement, and defamation simply because those claims
became ripe before the first action was resolved:
Perhaps if an additional manifestation of the initial claim that McCoy had
asserted in the state-court litigation subsequently had arisen before the
state-court litigation’s adjudication on the merits, McCoy may well have
been “obliged to amend his ... initial complaint to add these new
allegations.” Dubuc, 312 F.3d at 750. But, as discussed above, the facts
alleged in his instant complaint revolve around McCoy’s 2004 termination
and are not part of the same transaction upon which the state-court
litigation was based. Cf. id. at 751 (“When, as here, it is obvious that the
alleged ongoing retaliation is actually the defendant continuing on the
same course of conduct, which has previously been found by a court to be
proper, a subsequent court must conclude that the plaintiff is simply trying
to relitigate the same claim.”); Doe v. Allied-Signal, Inc., 985 F.2d 908, 914
(7th Cir. 1993) (“[E]ven if a plaintiff is aware of the factual basis for a suit
at the filing of another suit, he or she is not obligated to bring all claims
together if they do not arise out of the same transaction.”).
McCoy, 369 Fed. Appx. at 652.
As the McCoy court observed, courts that held a second action barred by a prior
one under Michigan res judicata law also found transactional relatedness based on a
continuing course of conduct by the defendant that gave rise to the claims alleged in
both complaints. See, e.g., Buck, 597 F.3d at 817 (holding that res judicata barred
plaintiff’s second lawsuit because the fact allegations underlying the suit were the same
as those underlying the first – though they covered a different time period – and were
thus a part of the same transaction as the first); Yinger v. City of Dearborn, No. 968
2384, 132 F.3d 35, 1997 WL 735323, at *4 (6th Cir. Nov. 18, 1997) (table) (“In this case,
the operative, allegedly discriminatory, decision underlying all of plaintiff’s claims was
the City’s decision not to return plaintiff to work....Since the operative decision occurred
prior to the date on which plaintiff filed the second lawsuit in the Wayne County Circuit
Court, the principle of res judicata clearly bars plaintiff’s claims.”); Adair, 470 Mich. at
125-26 & n. 16 (holding plaintiffs’ claims in second lawsuit alleging a violation by the
state of Michigan of the Headlee Amendment to the Michigan Constitution were barred
by res judicata because the claims were “indistinguishable” from those of the first suit,
concerned the same amendment, and existed during the pendency of that suit). These
cases are distinguishable from the facts here; the conduct underlying this lawsuit is new
and independent from the conduct underlying the 2009 rescission action.
That the relationship between Shafi and Plaintiffs began in 2008 when they
entered into the Sale Agreements, and this action would not exist had they not entered
into a business relationship at that time, does not affect the outcome. See, e.g., Banks,
271 Mich. App. at 230-31. In Banks, the Michigan court of appeals held that res
judicata did not bar an injured worker’s workers’ compensation claim arising from a neck
injury even though the injury occurred prior to the final disposition of an earlier claim
based on an elbow injury, and both injuries arose from the same relationship between
the parties. Id. The court reasoned:
In the instant case, the two claims were separated by a span of more than
5 ½ years and apparently occurred in two different places. Although the
claims originated from the same relationship and were motivated by a
similar desire to recover benefits, the injuries originated from two totally
separate incidents....Under the circumstances, the two injuries were not
conveniently packaged for one trial. Therefore, the “transactional” factors
weigh heavily in favor of finding that the separate injuries did not arise
from the same transaction.
Id. Similarly, Plaintiffs’ claims against Shafi for defamation and unlawful competition
and Braintech’s 2009 claim for rescission did not form a convenient unit for trial. The
different time periods, fact allegations, and evidence required to prove the claims weigh
in favor of finding separate causes of action that did not arise from the same
Plaintiff fails to demonstrate that application of Michigan res judicata rules results
in a different disposition of the case under E.D. Mich. LR 7.1(h)(3).
Accordingly, the Court DENIES Shafi’s Motion to Reconsider.
IT IS ORDERED.
S/Victoria A. Roberts
Victoria A. Roberts
United States District Judge
Dated: December 30, 2011
The undersigned certifies that a copy of this
document was served on the attorneys of
record by electronic means or U.S. Mail on
December 30, 2011.
s/Carol A. Pinegar
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