The opinion of the court was delivered by: Brody, J.
The matter before me requires that I determine the preclusive effect on
the present action, if any, of a prior state court judgment by the
Arkansas Circuit Court. On January 25, 1996, plaintiff/counterclaim
defendant Green Machine Corporation ("GMC"), initiated a state court
action against defendant/counterclaim plaintiff Allen Engineering
Corporation ("AEC") in the Circuit Court of Greene County, Arkansas ("the
Arkansas action").*fn1 AEC answered GMC's Arkansas complaint and
asserted counterclaims against GMC. The Arkansas Circuit Court ultimately
dismissed GMC's complaint without prejudice and entered a final judgment
in favor of AEC on its counterclaims. On May 6, 1999, GMC, joined by
Edward Zuzelo, president of GMC, initiated this federal action asserting
patent infringement under 35 U.S.C. § 271*fn2 and various other state
law claims. AEC now moves this court to limit GMC's claims under the
doctrines of res judicata and collateral estoppel.
GMC manufactures saws, saw blades, and arbors for cutting concrete.
Edward Zuzelo is the President of GMC. GMC was created in 1994 when
Cardinal Industries, Inc. ("Cardinal") divided into two separate and
distinct companies. AEC sells saws and blades for cutting concrete. From
GMC's inception in 1994 through October, 1995, AEC sold GMC's saws,
blades and arbors.*fn3 By contract, GMC agreed to indemnify AEC for "any
expenses or liability from any suit for patent infringement of any
Chiuminatta patents as a result of its sale of [GMC's products.]"
Complaint, Exhibit D. Edward A. Zuzelo and Marilyn C. Zuzelo both signed
a personal guarantee to the indemnification agreement.
In July 1995, Chiuminatta Concrete Concepts, Inc., Edward Chiuminatta,
and Alan Chiuminatta (collectively "Chiuminatta") sued Cardinal, GMC, and
AEC for patent infringement in the United States District Court for the
Central District of California, Western Division. AEC cross filed for
indemnification by GMC pursuant to the indemnification agreement. GMC
maintained that its contractual obligations to indemnify AEC had not
matured, because AEC had not purchased the requisite number of saws from
GMC.*fn4 In October, 1995, the business relationship between AEC and GMC
came to an end. In December of 1995, AEC entered into a consent judgement
with Chiuminatta in which AEC admitted infringement of the Chiuminatta
patents by the GMC saw. AEC paid Chiuminatta $40,000.00 in judgement.
On January 25, 1996, GMC commenced the Arkansas action against AEC
alleging that AEC owes GMC "$18,747.03 for goods, wares, merchandise
and/or services rendered purchased by defendant and delivered to the
defendant at their special request." Defendant's Motion, Exhibit A
("Arkansas Complaint"). AEC answered the complaint and asserted
counterclaims against GMC:
"for the sum of $72,213.09 for credits for defective
goods, wares, merchandise and/or services provided by
plaintiff to defendant and for certain sums owed to
the plaintiff by defendant under the terms of an
Defendant's Motion, Exhibit B ("Counterclaim"). GMC filed an Answer to
AEC's counterclaim denying all material allegations.
Sixteen months later, on May 26, 1999, AEC amended its counterclaim in
the Arkansas action. The Amended Counterclaim more fully set forth AEC's
claim for indemnification with respect to the sums paid by AEC to
Chiuminatta and AEC's allegation that GMC breached its warranty of title
and warranty against infringement. The Amended Counterclaim was premised
upon the Chiuminatta action and the written indemnification agreement
between the parties. AEC alleged that:
• "The plaintiff, [GMC] sold the defendant saws
• On January 13, 1995, [AEC] and [GMC] entered
into an Indemnification Agreement . . . The agreement
was provided by [GMC] to [AEC] in consideration for
[AEC] selling and distributing the saws manufactured
by [GMC]. The plaintiff warranted in said
indemnification agreement to the defendant that the
saws did not infringe upon the patent of a third
party, namely [Chiuminatta].
• Upon the attempts of [AEC] to distribute said saws,
Chiuminatta initiated a federal lawsuit naming [AEC] as a
• As a result, the defendant in this action incurred
$18,352.09 in attorney's fees from defending the patent
• The defendant also paid a $40,000.00 judgment to
• As the saws in question did in fact infringe on the
patent of Chiuminatta, they were of no use to [AEC] . . ."
• Separate and apart from the indemnification
agreement, [GMC] warranted that the products would be
delivered free of the rightful claim of any third
person by way of infringement or the like."
• Since Green Machine supplied products which
infringe any of the Chiuminatta patents asserted
against Allen Engineering in the underlying federal
action, then Green Machine has breached its warranty
of title and warranty against infringement."
Defendant's Motion, Exhibit C ("Amended Counterclaim"). Based on these
allegations, AEC sought judgment against GMC in the amount of $72,213.09
plus interest and costs. GMC filed a reply to the Amended Counterclaim
denying all material allegations.
On May 6, 1999, GMC initiated this federal action against AEC. In
the complaint, GMC alleges that:
• "Since in or before February 1994, through and
including October 1995, GMC and AEC consistently
engaged in an ongoing commercial relationship in which
AEC performed as exclusive distributor of Saws, Blades
and Arbors for GMC (the "Commercial Relationship") .
• The course of performance, course of dealing,
and usage of trade were ratified by the parties in a
letter of understanding ("Letter of Understanding"), a
proposed agreement ("Proposed Agreement") and an
indemnification agreement ("Indemnification
Agreement"), all of which were drafted by GMC's former
counsel John W. Logan, Jr. ("Logan") in or around the
winter/spring of 1993-94 (hereinafter collectively
referred to as the "Agreement"). AEC neither made nor
expressed any objection to the Agreement . . .
• As GMC's exclusive distributor, AEC was
entrusted with confidential information regarding the
creation and design of the Saws, including the GM-150
(the "Confidential Information") . . .
• The Confidential Information is a trade secret
• It is believed and therefore averred that
despite GMC's entrustment of the Confidential
Information to AEC, AEC has intentionally and
maliciously duplicated the GM-150, all to its own gain
and benefit, and to the serious detriment of Zuzelo
and GMC . . .
• As exclusive distributor for GMC, AEC had a
duty to use its best efforts to sell the GMC ...