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NTCH-WA, Inc. v. ZTE Corp.

United States Court of Appeals, Ninth Circuit

April 25, 2019

NTCH-WA, Inc., a Washington corporation, Plaintiff-Appellant,
v.
ZTE Corporation, a business incorporated under the laws of the People's Republic of China, Defendant-Appellee.

          Argued and Submitted March 5, 2019 Seattle, Washington

          Appeal from the United States District Court for the Eastern District of Washington No. 2:12-cv-03110-TOR Thomas O. Rice, Chief District Judge, Presiding

          Shannon Gallagher (argued), Law Office of Shannon Gallagher, Irvine, California; Joshua E. Austin, NTCH-WA Inc., Columbia, South Carolina; for Plaintiff-Appellant.

          Laura Eve Besvinick (argued), Stroock & Stroock & Lavan LLP, Miami, Florida; Michael J. Kapaun, Witherspoon Kelley, Spokane, Washington; Frank T. Spano, Polsinelli PC, New York, New York; for Defendant-Appellee.

          Before: Ronald M. Gould and Richard A. Paez, Circuit Judges, and Dean D. Pregerson, [*] District Judge.

         SUMMARY[**]

         Arbitration / Claim Preclusion

         The panel affirmed the district court's judgment in favor of ZTE Corp. because claim preclusion barred plaintiff's claims in this diversity action.

         Plaintiff previously arbitrated breach of contract and related claims against ZTE USA, a wholly-owned subsidiary of defendant ZTE Corp. ZTE Corp. was not a party to that arbitration. The arbitrator denied plaintiff's claims, a federal district court affirmed the award, and the Eleventh Circuit affirmed the district court judgment.

         The panel held that the arbitration award and its confirmation by a district court together barred plaintiff from pursuing its current claims against ZTE Corp., under the doctrine of claim preclusion.

         In an issue of first impression in this circuit, the panel held that in a diversity judgment case, the preclusion law of the state where the federal court, confirming an arbitration award, sat determined the preclusive effect of the award. The panel held that Florida law applied because a district court in Florida confirmed the award.

         The panel held that under Florida law, claim preclusion barred plaintiff's claims because plaintiff was seeking the same remedy it sought in arbitration, the evidence needed to prove plaintiff's claims here was the same, ZTE Corp. was in privity with its wholly-owned subsidiary ZTE USA, and the parties were suing in the same capacity as in the arbitration.

          OPINION

          GOULD, CIRCUIT JUDGE.

         Plaintiff-Appellant NTCH-WA, Inc. previously arbitrated breach of contract and related claims against ZTE USA, a wholly-owned subsidiary of Defendant-Appellee ZTE Corp. ZTE Corp. was not a party to that arbitration. The arbitrator denied NTCH-WA's claims, the District Court for the Middle District of Florida confirmed the award under the Federal Arbitration Act, 9 U.S.C. § 9, and the Eleventh Circuit affirmed the district court's judgment.

         The question before us is whether the arbitration award and its confirmation by a district court together bar NTCH-WA from pursuing its current claims against ZTE Corp., under the doctrine of claim preclusion.[1] We hold that it does.

         When a federal court sitting in diversity confirms an arbitration award, the preclusion law of the state where that court sits determines the preclusive effect of the award. Because a district court in Florida confirmed the award here, Florida law applies. Under Florida law, claim preclusion bars NTCH-WA's claims because NTCH-WA is seeking the same remedy it sought in arbitration, the evidence needed to prove NTCH-WA's claims here is the same, ZTE Corp. is in privity with its wholly-owned subsidiary ZTE USA, and the parties are suing in the same capacity as in the arbitration. For these reasons, we affirm the district court's dismissal of NTCH-WA's claims.

         I

         The background to the current controversy involves several related parties and suits: NTCH-WA is an entity- along with PTA-FLA, Inc.; Daredevil, Inc.; and NTCH-West Tenn., Inc.-"owned and controlled by Eric Steinmann." PTA-FLA, Inc. v. ZTE USA, Inc., 844 F.3d 1299, 1302 (11th Cir. 2016). "[T]hey operate together under the name 'ClearTalk.'" Id. ClearTalk "offer[s] prepaid and flat-rate cell phone service to customers with poor credit or who otherwise cannot open accounts with major cell phone providers." Id.

         The ClearTalk entities filed suit against ZTE USA in 2011, asserting breach of contract and related claims. Daredevil sued ZTE USA in Missouri; PTA-FLA sued ZTE USA in South Carolina; and NTCH-West Tenn. sued ZTE USA in Tennessee. Steinmann sued ZTE USA and ZTE Corp. in California. ZTE USA moved to compel arbitration, and the parties eventually stipulated to a consolidated arbitration. From that point, the arbitration "went forward as a single ...


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