Orca Yachts, L.l.c. v.  Mollicam, Incorporated

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 ORCA YACHTS, L.L.C.
Plaintiff-Appellant,
v. No. 99-1878 
MOLLICAM, INCORPORATED,
Defendant-Appellee. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Henry C. Morgan, Jr., District Judge.
(CA-99-465-2)
Argued: April 5, 2000
Decided: April 22, 2002
Before WIDENER and TRAXLER, Circuit Judges, and
Joseph R. GOODWIN, United States District Judge for the
Southern District of West Virginia, sitting by designation.
Appeal dismissed by published opinion. Judge Widener wrote the
opinion, in which Judge Traxler and Judge Goodwin concurred.
COUNSEL
ARGUED: Lawrence Hoyt Glanzer, MARCUS, SANTORO,
KOZAK & MELVIN, Portsmouth, Virginia, for Appellant. Eric Wag-
ner Schwartz, MAYS & VALENTINE, L.L.P., Norfolk, Virginia, for
Appellee. ON BRIEF: Richard S. Sperbeck, HUFF, POOLE &
MAHONEY, P.C., Virginia Beach, Virginia, for Appellant. George

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H. Bowles, MAYS & VALENTINE, L.L.P., Norfolk, Virginia, for
Appellee.
OPINION
WIDENER, Circuit Judge:
Plaintiff Orca Yachts is a North Carolina corporation, qualified to
do business in the Commonwealth of Virginia with its principal place
of business in Chesapeake, Virginia. Orca manufactures long range
offshore sportfishing boats. Defendant Mollicam, Inc. is a Florida cor-
poration with its principal place of business in Merritt Island, Florida.
Mollicam manufactures plugs for fiberglass items, including hull and
deck plugs for boats.
I.
In April 1998, Orca contracted with Mollicam to purchase hull and
deck plugs for Orca’s 31-foot model boat and a hull plug for its 37-
foot model boat. Orca claimed shipment of defective plugs, and on
April 1, 1999, Orca filed a suit on a breach of contract claim against
Mollicam in the United States District Court for the Eastern District
of Virginia. The complaint alleged that Mollicam breached its con-
tract with Orca by shipping defective products to Orca in Virginia and
by failing to timely deliver conforming products to Orca.
On May 13, 1999, Mollicam filed a Fed. R. Civ. P. 12(b)(2) motion
to dismiss for lack of personal jurisdiction contending that Orca could
not establish that Mollicam had sufficient minimum contacts with
Virginia to assert personal jurisdiction. Orca’s response contended
that Mollicam intentionally engaged in business transactions with
Orca in Chesapeake, Virginia and thus established requisite contacts
for personal jurisdiction.
On June 9, 1999, after a hearing on Mollicam’s motion to dismiss,
the district court concluded that Orca established that Mollicam had
contracted with Orca to provide services or things in Virginia under
Virginia’s long-arm statute, Va. Code. Ann. § 8.01-328.1. However,
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the district court decided that personal jurisdiction was lacking
because Orca failed to establish that Mollicam purposefully directed
its activities at Virginia and maintenance of the suit would offend tra-
ditional due process notions of fair play and substantial justice. As a
result, the district court dismissed Orca’s complaint without prejudice.
Orca appealed this decision on June 28, 1999. We dismiss this appeal.
Following the June 9, 1999 hearing in the Virginia federal district
court, Mollicam, on June 15, 1999, sued Orca in the Brevard County
Florida court to collect sums due from Orca. Orca removed that case
to the United States District Court for the Middle District of Florida,
Orlando Division. Mollicam, Inc. v. Orca Yachts, L.L.C., Civil Action
No.: 99-1020-CIV-ORL-22C. Orca also filed a counterclaim in the
Florida action for the same relief it sought in the suit it had filed in
the Virginia federal district court.
On January 7, 2000, a Florida magistrate judge entered an order
directing Orca to show cause, in writing, by January 18, 2000, why
the court should not strike Orca’s answer and enter default against it
for its failure to prepare and file a case management report as required
by that court’s Local Rule 3.05(c)(2)(B). Orca failed to respond to
this order, and on January 20, 2000, the Florida district court found
Orca in default and entered an order striking Orca’s answer and affir-
mative defense and counterclaim. On February 17, 2000, that same
court granted judgment for Mollicam and entered judgment on Febru-
ary 18, 2000.
Prior to oral argument, Mollicam filed a motion to dismiss the pres-
ent appeal on the grounds that the underlying claim is barred by the
doctrine of res judicata and therefore moot following the action by
the Florida district court. Counsel for both parties briefed the merits
of this motion and argued its merits orally before presenting oral
argument on the underlying appeal.
II.
Under res judicata principles, a prior judgment between the same
parties can preclude subsequent litigation on those matters actually
and necessarily resolved in the first adjudication. See In re Varat
Enters., Inc., 81 F.3d 1310, 1315 (4th Cir. 1996). The doctrine of res
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judicata encompasses two concepts: 1) claim preclusion and 2) issue
preclusion, or collateral estoppel. Varat, 81 F.3d at 1315 (citing Allen
v. McCurry, 449 U.S. 90, 94 (1980)). The rules of claim preclusion
provide that if the later litigation arises from the same cause of action
as the first, then the judgment in the prior action bars litigation "not
only of every matter actually adjudicated in the earlier case, but also
of every claim that might have been presented." Varat, 81 F.3d at
1315 (citing Nevada v. United States, 463 U.S. 110, 129-30 (1983)).
However, issue preclusion is more narrowly drawn and applies when
the later litigation arises from a different cause of action between the
same parties. Varat, 81 F.3d at 1315. Issue preclusion operates to bar
subsequent litigation of those legal and factual issues common to both
actions that were "actually and necessarily determined by a court of
competent jurisdiction in the first litigation." Varat, 81 F.3d at 1315
(quoting Montana v. United States, 440 U.S. 147, 153 (1979)). Thus,
while issue preclusion applies only when an issue has been actually
litigated, claim preclusion requires only a valid and final judgment.
Compare Restatement (Second) of Judgments § 27 (1980) (when issue
of fact or law is actually litigated the determination is conclusive in
subsequent action between the same parties) with § 17 of the same
Restatement (a valid final judgment is conclusive between the parties
and bars subsequent action on the claim).
In this case, Orca argues that because its counterclaim was merely
stricken and not specifically dismissed under Fed. R. Civ. P. 41, the
counterclaim was not considered by the Florida district court, and
thus the default judgment cannot have a preclusive effect upon the
current appeal. Orca further argues that since its claims against Molli-
cam were not actually litigated in the Florida action, the default judg-
ment does not bar the instant appeal on res judicata grounds and the
motion to dismiss should be denied.
We do not agree. Even though the judgment in Florida was a
default judgment, the doctrine of res judicata remains applicable. See
Morris v. Jones, 329 U.S. 545, 550-51 (1947) ("‘A judgment of a
court having jurisdiction of the parties and of the subject matter oper-
ates as res judicata, in the absence of fraud or collusion, even if
obtained upon default.’" (quoting Riehle v. Margolies, 279 U.S. 218,
225 (1929))).
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With respect to Orca’s counterclaim in the Florida action, we are
of opinion that the doctrine of res judicata operates as a bar to Orca’s
appeal before this court. We are not persuaded by Orca’s argument
that its counterclaim remained viable despite being stricken with
judgment entered for the plaintiff. Although Rule 41 Fed. R. Civ. P.
was not mentioned in the order, this was plainly an involuntary dis-
missal for violation of the rules or an order of the district court under
Fed. R. Civ. P. 41(b) and, as such, is an adjudication on the merits.
The striking of a plea or a counterclaim is generally an "unessential
prelude or accoutrement to a dismissal or default judgment" and a
default judgment has claim preclusion effect as to all claims or coun-
terclaims in the proceeding. Wood v. Several Unknown Metrop.
Police Officers, 835 F.2d 340, 343-44 n.9 (D.C. Cir. 1987).* Thus,
the Florida court’s decision to strike Orca’s counterclaim and entry of
judgment in favor of Mollicam was effective to dismiss Orca’s coun-
terclaim for purposes of Fed. R. Civ. P. 41.
Under Fed. R. Civ. P. 41(b), unless otherwise specified by the
court, a dismissal other than one for lack of jurisdiction, for improper
venue, or for failure to join a party operates as an adjudication upon
the merits. See 18 Charles Alan Wright et al., Federal Practice and
Procedure § 4440, at 362 (1981). More specifically, Rule 41(c) states
that the "provisions of this rule apply to the dismissal of any counter-
claim." Fed. R. Civ. P. 41(c). By striking the counterclaim, the Flor-
ida district court dismissed Orca’s counterclaim, and Orca’s failure to
appeal this judgment rendered the Florida district court’s action final.
As such, Orca can no longer maintain this appeal founded upon iden-
tical grounds as those in its Florida counterclaim because such an
action is barred by the doctrine of res judicata. See Restatement (Sec-
ond) of Judgments § 23 (1980) (Where a defendant interposes a claim
as a counterclaim and a valid and final judgment is rendered against
him on the counterclaim, he cannot thereafter maintain an action on
the claim stated in the counterclaim).
*We agree with the court’s statement in Wood that a default judgment
such as this has claim preclusive effect to all claims or counterclaims and
we too "decline to attribute significance to the phrasing of the order as
one striking the answers and counterclaims rather than striking the
answers and dismissing the counterclaims or simply entering a default
judgment straight away." Wood, 835 F.2d at 343-44 n.9.
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Finally, the fact that Orca’s counterclaim was not actually litigated
in Florida does not affect our decision to grant Mollicam’s motion to
dismiss. As initially explained, while issue preclusion applies only
when an issue has been actually litigated, claim preclusion requires
only a valid and final judgment. In this case, the Florida court’s dis-
missal of Orca’s counterclaim was a final judgment. Accordingly, the
rules of claim preclusion preclude Orca from appealing the same
cause of action before this court.
III.
Because the default judgment in Florida was a final adjudication of
both the claim for sums due brought by Mollicam, as well as Orca’s
counterclaim, Orca is barred by the doctrine of res judicata from pro-
ceeding with the current appeal.
We express no opinion as to the correctness of the order of the Vir-
ginia federal district court appealed from in this case.
Mollicam’s motion to dismiss this appeal as moot is accordingly
granted. See Southern Pac. Terminal Co. v. Interstate Commerce
Comm’n., 219 U.S. 498, 514 (1911).
APPEAL DISMISSED
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