Case: 1:05-cv-01519-LW Doc #: 126 Filed: 07/05/06 1 of 33. PageID #: 1708
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF OHIO
`EASTERN DIVISION
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`AUTOMATED SOLUTIONS CORP.,
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`Plaintiff,
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`v.
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`PARAGON DATA SYSTEMS, INC..
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`Defendant.
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`CASE NO. 1:05CV1519
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`JUDGE WELLS
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`MAGISTRATE JUDGE HEMANN
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`REPORT AND RECOMMENDATION
`Docket ##80, 117
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`This case is before the magistrate judge on referral. Pending is the motion of
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`plaintiff/counter-defendant, Automated Solutions Corp. (“ASC”), to dismiss the counterclaim
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`pursuant to Fed. R. Civ. P. 12(B)(6) (“R. 12(B)(6)”) (“Pl. mot.”; Docket # 80).
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`Defendant/counterclaimant, Paragon Data Systems, Inc. (“Paragon”), opposes ASC’s
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`motion (“Def. opp.”; Docket # 95). Also pending is Paragon’s motion to bifurcate the
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`proceedings and stay discovery (Docket # 117). ASC opposes Paragon’s motion (Docket
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`# 120). For the reasons stated below, the magistrate judge recommends that the court
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`grant ASC’s motion to dismiss in part and overrule it in part and also recommends that the
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`court overrule Paragon’s motion to bifurcate and stay discovery.
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` I. Background
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`The court, as it must, takes all well-pleaded allegations in the counter-claim as true
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`and construes those allegations in a light most favorable to the counter-claimant. Paragon
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`alleges or does not dispute the following facts.
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`

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`Case: 1:05-cv-01519-LW Doc #: 126 Filed: 07/05/06 2 of 33. PageID #: 1709
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`On June 21, 2001 ASC and Paragon entered into a Software Development and
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`Ownership Agreement (“Agreement”) by which ASC and Paragon were to license and own
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`software for use by the Tribune and by similar companies (“ASC-Paragon software” or
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`“SCDS software”). The Agreement included in relevant part the following preliminary
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`clauses:
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`WHEREAS, ASC is in the process of developing custom software to be
`licensed and used by The Chicago Tribune, Inc. and other similar businesses
`(“ASC-PARAGON SOFTWARE”);
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`WHEREAS, Paragon will provide certain equipment, maintenance and
`support to The Chicago Tribune, Inc. and other similar businesses, in conjunction
`with the ASC-PARAGON SOFTWARE;
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`WHEREAS, ASC and Paragon agree that the ASC-PARAGON SOFTWARE
`will be jointly owned by the two companies, including, but not limited to all copyrights
`to said software and all rights to license and/or sell and/or modify said software;
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`WHEREAS, ASC and Paragon acknowledge that Paragon has paid in excess
`of $150,000.00 as of this date to develop the ASC-PARAGON SOFTWARE;
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`WHEREAS, ASC and Paragon agree that the two companies will jointly
`market the software and will equally divide all revenues received as a result of the
`software;
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`WHEREAS, ASC and Paragon desire at this time to formalize their
`agreement in writing and proceed with the development of the ASC-PARAGON
`SOFTWARE and the marketing of the same.
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`Agreement, Amended Counterclaim (Docket # 56), Exh. A, p. 1. The Agreement also
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`included the following substantive clauses:
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` SECTION ONE
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`ASC will devote the time required to complete the development of the ASC-
`PARAGON SOFTWARE which is required to satisfy each and every term of the
`Software License Agreement which has been proposed by The Chicago Tribune,
`Inc.
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`2
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`

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` SECTION TWO
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`PARAGON will continue to pay to ASC the costs directly associated with the
`development and modification of the ASC-PARAGON SOFTWARE. The additional
`costs of ASC shall not exceed $200,000.
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` SECTION THREE
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`ASC and PARAGON will devote the time and resources necessary in order
`to successfully market and modify the ASC-PARAGON SOFTWARE to The Chicago
`Tribune, Inc. and other potential customers. No contract for sale, licensure,
`modifications, etc. of said software will be valid unless signed by both ASC and
`PARAGON.
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` SECTION FOUR
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`ASC and PARAGON shall equally divide all revenues received from the ASC-
`PARAGON SOFTWARE. This shall include all revenues received from the original
`version of said software and/or any modification of said software less the actual cost
`of said modifications. This shall further include all revenues from all sources,
`whether it be from licenses, sales, maintenance, etc.
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` SECTION FIVE
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`ASC and PARAGON agree that upon the completion of the ASC-PARAGON
`SOFTWARE, that they shall jointly take all steps necessary to have the software
`copyrighted and that they shall jointly own said copyright.
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` SECTION SIX
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`ASC and PARAGON agree that should ASC not complete the development
`of said software with in [sic] 180 business days from the date of this contract in
`order; or to satisfy the terms and conditions of contract with The Chicago Tribune,
`Inc., based upon the timelines agreed upon by The Chicago Tribune and ASC-
`PARAGON exclusive of documented delays resulting from the actions of third
`parties outside of ASC control then the following events shall occur:
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`1.
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`PARAGON shall become the sole and exclusive owner of the ASC-
`PARAGON SOFTWARE, the source codes and all rights to said
`software and all revenues from all sources generated by said software
`shall become the sole and exclusive property of PARAGON should
`ASC or its principals not complete the terms of this contract;
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`2.
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`ASC shall take all steps necessary to transfer ownership of the ASC-
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`3
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`

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`PARAGON SOFTWARE and the copyright to PARAGON; and
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`3.
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`The principals of ASC, Richard Petcher and Edward Eaglehouse, shall
`perform independent consulting services for Paragon at the hourly
`rate of $85.00 until the software is completed and operational in
`accordance with the terms and conditions of the contract with The
`Chicago Tribune, Inc. Payment to Richard Petcher and Edward
`Eaglehouse for said services shall not exceed the balance of the
`$200,000 less payments already made;
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` SECTION SEVEN
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`It is agreed and understood that the partes may modify this contract at some
`point in the future, should it become necessary and that the parties shall negotiate
`in good faith a modification of this contract and each party will execute any
`modifications of this contract in order for said modification to become binding.
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` SECTION EIGHT
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`This instrument contains the entire agreement between the parties, and no
`statements, promises, or inducements made by either party or agent of either party
`that are not contained in this written contract shall be binding; this contract may not
`be enlarged, modified, or altered except in writing signed by the parties and
`endorsed on this agreement.
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` SECTION NINE
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`This agreement shall inure to the benefit of and be binding on the heirs, legal
`representatives, assignees, and successors of the respective parties.
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` SECTION TEN
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`ASC and PARAGON agree that nothing contained in this agreement is
`intended or shall be deemed to constitute a partnership or joint venture between
`ASC and PARAGON, or the right to incur credit, debt or other forms of obligation in
`the name of the other party.
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` SECTION ELEVEN
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`ASC and PARAGON agree that nothing contained in this agreement is
`intended or shall be deemed to give ASC or PARAGON the right to contract on the
`other parties’ [sic] behalf.
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`Id. at 1-3.
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`4
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`

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`Case: 1:05-cv-01519-LW Doc #: 126 Filed: 07/05/06 5 of 33. PageID #: 1712
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`On September 23, 2003 ASC filed a complaint against Paragon in the Cuyahoga
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`County Court of Common Pleas. ASC sought a declaratory judgment regarding its rights
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`under the Agreement after Paragon’s alleged termination and breach of the Agreement.
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`The court entered an opinion in the case on February 4, 2005. See Opinion & Order,
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`attached to First Amended Complaint (Docket #5). In its opinion the court made the
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`following relevant findings of fact and law:1
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`The parties entered into a contract on June 21, 2001 that provided for the
`1.
`development of software (Exhibit 3). Pursuant to the contract, the parties jointly
`owned the software.
`2.
`Parties then contracted with the Chicago Tribune to provide the software to
`the Tribune. Plaintiff claims that the Defendant was not a party to the Plaintiff’‘s
`contract with the Chicago Tribune (Exhibit 33, executed August 22, 2001).
`However, Defendant signed the agreement. Moreover, the Chicago Tribune
`contract states that both the Plaintiff and the Defendant jointly owned the software.
`3.
`Plaintiff alleges that the Defendant failed to make payments required by the
`June 2001 contract. However, the parties signed a settlement of their monetary
`obligations on September 20, 2002 (Exhibit 34). Plaintiff cannot now claim that the
`Defendants failed to make payments under the June 2001 contract, when Plaintiff
`settled those claims.
`4.
`Plaintiff also alleged that the Defendant breached the June 2001 contract by
`marketing the software to third parties without the Plaintiff’s written consent.
`Testimony at trial proves that the Defendant could market the software without the
`Plaintiff’s consent, but had to obtain written authorization before executing a sale.
`Plaintiff presented no evidence of a sale.
`5.
`Defendant asserts counterclaims alleging the Plaintiff failed to timely
`complete the project according to the deadlines outlined in the June 2001 contract.
`It is undisputed that the Chicago Tribune requested modifications to the software,
`which resulted in delays and continuances. Continuances due to modifications are
`allowed by the express terms of the June 2001 contract.
`6.
`Defendant clearly and unambiguously terminated its June 2001 contract by
`letter dated September 16, 2003 (Exhibit 20). At that time, Defendant had settled
`its monetary obligations to the Plaintiff and was awaiting Plaintiff’s completion of the
`software. Defendant claims that the Plaintiff was in breach of the June 2001
`contract, but instead of seeking legal remedies for the alleged breach, Defendant
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`1 This court quotes from the state court opinion not to evaluate the truth or falsity
`of the state court’s findings but solely to determine which issues were adjudicated in the
`state court action.
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`5
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`

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`“terminated” the agreement. Defendant, at that time, had the option to seek a
`determination in court as to whether or not in fact the Plaintiff had breached its
`duties under the contract. At that juncture, the Defendant chose to terminate the
`contract prior to seeking any judicial ruling on the issues between the parties.
`7.
`In view of this Court’s finding that the parties were in fact joint owners of the
`software/code, the Defendant’s unilateral termination of the contract was a decision
`made at their own risk. Clearly, the Defendant could have sought legal remedies
`prior to termination of the contract, but it chose not to do so. By terminating the
`contract, Defendant lost any rights under the contract as of that date.
`8.
`The parties were joint owners of the software until September 16, 2003.
`Defendant, however, has no legal rights related to any modifications of the software
`made after the Defendant’s unilateral termination of the contract on September 16,
`2003. As of that date, all obligations between the parties were “terminated.”
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`Order & Opinion at 1-2.
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`On February 25, 2005 ASC obtained a federal registration of its copyright to the
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`SCDS software. On March 4, 2005 Paragon filed a notice of appeal of the state court’s
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`decision denying Paragon rights to the SCDS software after September 16, 2003.
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`ASC filed the instant action in state court, and Paragon removed it to federal court
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`on May 5, 2005. ASC alleges that Paragon has been selling and licensing “Delivery,
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`Return, and Collection Information” (“DRACI”) software and that this software infringes on
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`its copyright to the SCDS software. ASC also alleges that Paragon has wrongfully retained
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`copies of the SCDS software, continues to represent itself as the owner of that software,
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`has marketed its DRACI software as SCDS software, and has improperly sold or licensed
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`SCDS software to third parties without ASC’s consent. ASC contends that these alleged
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`wrongful acts have interfered with ASC’s relations with present and prospective customers.
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`ASC asserts federal causes of action for copyright infringement pursuant to 17 U.S.C. §
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`502 and for a violation of the Lanham Act pursuant to 15 U.S.C. § 1125(a). ASC also
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`asserts state law causes of action for conversion, tortious interference with business
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`relationships, unjust enrichment, and unfair competition. ASC seeks injunctive relief,
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`6
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`

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`compensatory and punitive damages, and attorney’s fees and costs.
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`Paragon filed an Answer and Counterclaims on July 14, 2005, and on October 6,
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`2005 Paragon filed an Amended Counterclaim. Paragon alleges that ASC breached the
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`Agreement by failing to complete the SCDS software by specified deadlines, failing to
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`create marketable software, attempting to transfer rights not exclusive to it, failing to
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`provide consulting services to Paragon, failing to provide hardware to the Chicago Tribune,
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`and failing to include reference to Paragon as an author of the SCDS software on its
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`registration of that software with the United States Copyright Office. Paragon also
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`contends that ASC and Paragon entered into a Letter Agreement on September 20, 2002
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`(“the Letter Agreement”) regarding excess payments made to ASC by Paragon and the
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`handling of future invoicing and payments. Paragon alleges that ASC breached the Letter
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`Agreement and that one consequence of this breach is that Paragon is the sole owner of
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`the SCDS software and of profits derived from its sale. Paragon further alleges that ASC’s
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`copyright registration of the SCDS software should be declared invalid because of ASC’s
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`failure to include Paragon as an author of that software. Finally Paragon alleges that ASC’s
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`service of a subpoena duces tecum to the Cleveland Plain Dealer to produce copies of
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`DRACI without properly serving Paragon with a copy of the subpoena infringed on
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`Paragon’s copyright to the DRACI software and constituted an abuse of process. Paragon
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`asserts federal causes of action for declaratory judgment, copyright infringement, violations
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`of the Lanham Act, and abuse of process. Paragon also asserts state causes of action for
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`breach of contract, deceptive trade practices, and unjust enrichment. Paragon seeks
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`injunctive relief, compensatory and punitive damages, and attorney’s fees and costs.
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`On December 19, 2005 ASC moved pursuant to Fed. R. Civ. P. 12(B)(6) for
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`7
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`

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`Case: 1:05-cv-01519-LW Doc #: 126 Filed: 07/05/06 8 of 33. PageID #: 1715
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`dismissal of Paragon’s Amended Counterclaims (“Pl. mot.”; Docket #80). Paragon opposes
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`ASC’s motion (“Def. opp.”; Docket #95).
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` II. Standard for motion to dismiss
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`In deciding a Motion to Dismiss under Rule 12(b)(6), the court must take all well-
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`pleaded allegations in the complaint as true and construe those allegations in a light most
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`favorable to the plaintiff. Gausmann v. City of Ashland, 926 F. Supp. 635, 638 (N.D. Ohio
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`1996)(citations omitted). A well-pleaded allegation is one that alleges specific facts and
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`does not merely rely upon conclusory statements. Scheid v. Fanny Farmer Candy Shops,
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`Inc., 859 F.2d 434, 436 (6th Cir. 1988) (“more than bare assertions of legal conclusions is
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`ordinarily required to satisfy federal notice pleading requirements.”), citing 5 C. WRIGHT &
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`A. MILLER, FEDERAL PRACTICE & PROCEDURE § 1357 at 596 (1969). The court is to dismiss
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`a claim “only if it is clear that no relief could be granted under any set of facts that could be
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`proved consistent with the allegations.” Gausmann, 926 F. Supp. at 638, citing Hishon v.
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`King & Spaulding, 467 U.S. 69, 73 (1984). While the complaint must give the defendant
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`fair notice of the plaintiff’s claim and the grounds upon which it rests, it need not set down
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`in detail all the particularities of the claim. Gazette v. City of Pontiac, 41 F.3d 1061, 1064
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`(6th Cir. 1994); Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th
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`Cir. 1993). Under this standard,
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`[a] plaintiff will not be thrown out of court for failing to plead facts in support of every
`arcane element of his claim. But when a complaint omits facts that, if they existed,
`would clearly dominate the case, it seems fair to assume that those facts do not
`exist.
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`Scheid, 859 F.2d at 436 (quoting O'Brien v. DiGrazia, 544 F.2d 543, 546 n.3 (1st Cir. 1976)
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`cert. denied, 431 U.S. 914 (1977)).
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`8
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`Case: 1:05-cv-01519-LW Doc #: 126 Filed: 07/05/06 9 of 33. PageID #: 1716
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` III. Breach of contract
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`ASC moves for dismissal of Paragon’s cause of action for breach of contract,
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`alleging that this cause of action is barred by res judicata and collateral estoppel. Paragon
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`replies that (1) res judicata is not a proper defense to a motion to dismiss under Ohio law;
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`(2) the state court’s judgment is void because the state court lacked subject matter
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`jurisdiction to hear the case, and (3) the state court hearing the breach of contract action
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`denied Paragon leave to file its counterclaim. The court considers each of these arguments
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`separately.
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`A.
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`Res judicata is not a proper defense to a motion to dismiss under Ohio law
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`Paragon’s reliance on Ohio law to demonstrate that res judicata is not a proper
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`defense to a R. 12(B)(6) motion is misplaced. Res judicata is a valid defense to a R.
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`12(B)(6) motion under the federal procedural rules. See, e.g., Kane v. Magna Mixer Co.,
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`71 F.3d 555 (6th Cir. 1995); Rushford v. Firstar Bank, N.A., 50 Fed. Appx. 202 (6th Cir.
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`2002). As this court is a federal court proceeding under the federal procedural rules,
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`Paragon’s examination of Ohio’s procedural rules is beside the point.
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`B.
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`The state court lacked subject matter jurisdiction to hear ASC’s claims
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`Paragon also argues that the judgment of the state court does not have preclusive
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`effect under the doctrine of res judicata because the state court lacked subject matter
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`jurisdiction to hear the case. This argument fails because the state court did not lack
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`subject matter jurisdiction.
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`The state court case brought by ASC originally included eight causes of action
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`against Paragon: declaratory judgment, breach of contract, conversion, promissory
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`estoppel, unjust enrichment, fraud, negligent misrepresentation, and tortious interference
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`9
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`

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`with business relationships. See Stipulated Partial Dismissal without Prejudice and Tolling
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`Agreement, Def. opp.. Exh. B., p. 1. The parties agreed to proceed to trial only on ASC’s
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`first cause of action, a request for declaratory judgment as to ASC’s claim that it was
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`entitled to ownership of the SCDS software at issue in the instant case. Id. Paragon now
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`asserts that the court should not give res judicata effect “because the state court lacked
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`subject matter jurisdiction to award sole rights of ownership over the software to ASC
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`because Section 301 of the federal Copyright Act bestows exclusive jurisdiction in the
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`federal courts. Because the state court had no subject matter jurisdiction, its judgment is
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`void.”2 Def. opp. at 9.
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`As Paragon notes, federal courts have exclusive jurisdiction over copyright law and
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`federal copyright law preempts state laws within the subject matter of copyright:
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`Section 301 of the Copyright Act broadly preempts state law claims, and
`federal law vests exclusive jurisdiction over such preempted copyright claims in the
`federal courts. Section 301 of the Copyright Act states that "all legal or equitable
`rights that are equivalent to any of the exclusive rights within the general scope of
`copyright as specified in § 106 in works of authorship that . . . come within the
`subject matter of copyright . . . are governed exclusively by this title. . . . [N]o person
`is entitled to any such right or equivalent right in any such work under the common
`law or statutes of any State." 17 U.S.C. § 301(a) (emphasis added). Section
`1388(a), Title 28, further provides that "[t]he district courts shall have exclusive
`jurisdiction of any civil action arising under any act of Congress relating to . . .
`copyrights. . . . Such jurisdiction shall be exclusive of the courts of the states in . .
`. copyright cases." The Copyright Act is unusually broad in its assertion of federal
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`2 In its development of this argument Paragon cites two cases, Ritchie v. Williams,
`395 F.3d 283 (6th Cir. 2005), and Gener-Villar v. Adcom Grp., Inc., 417 F.3d 201 (1st Cir.
`2005), both of which lead the court to the conclusion that Paragon’s argument is utterly
`without merit. ASC’s briefing on the issue of preemption inapplicably was based on an
`Ohio appellate case, Tewarson v. Simon, 141 Ohio App. 3d 103, 750 N.E.2d 176 (2001).
`The court assumes that ASC was unable to find anything to the point written by the United
`States Supreme Court or the Sixth Circuit regarding the issue of preemption. The court
`suggests that both parties spend less time sniping at each other and more time reading the
`caselaw to advance their arguments more effectively and certainly more professionally.
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`10
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`

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`Case: 1:05-cv-01519-LW Doc #: 126 Filed: 07/05/06 11 of 33. PageID #: 1718
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`authority. Rather than sharing jurisdiction with the state courts as is normally the
`case, the statute expressly withdraws from the state courts any jurisdiction to
`enforce the provisions of the Act and converts all state common or statutory law
`"within the general scope of copyright" into federal law to be uniformly applied
`throughout the nation.
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`Ritchie v. Williams, 395 F.3d 283, 285-86 (6th Cir. 2005) (footnote omitted).
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`This not to say, however, that any matter in any way related to the issue of copyright
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`is preempted by copyright law. Federal copyright law preempts only actions that are
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`equivalent to a copyright action. States are free to adjudicate related matters:
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`In determining . . . whether or not a particular state law cause of action is
`"equivalent" to a federal copyright infringement action, most circuits (including this
`one) have referred to the "extra element test." See Wrench v. Taco Bell Corp., 256
`F.3d 446, 454 (6th Cir. 2001). Under this analytical device, if the state claim
`requires an "extra element," beyond those required for copyright infringement, then
`it is not "equivalent," and therefore not preempted. Id. If there is no "extra element,"
`or the "extra elements" are merely "illusory," then the claim is equivalent to a
`copyright action, it is preempted by the Copyright Act and the federal courts have
`exclusive jurisdiction to hear it. Id.
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`Ritchie, 395 F.3d at 288 n.3 (noting the difficulty of applying the “extra element test’).
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`Paragon conducts no analysis to determine whether the state court action below was
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`preempted by federal copyright law. In that case, the court determined that ASC was the
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`sole owner of the SCDS program developed for the Chicago Tribune because Paragon had
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`breached the contract that would have given it some ownership of the program. To prevail
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`on a copyright infringement claim, "a plaintiff must show: (1) ownership of a valid copyright,
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`and (2) copying of constituent elements of the work that are original." Ellis v. Diffie, 177
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`F.3d 503, 506 (6th Cir. 1999). To prevail on a breach of contract claim under Ohio law, a
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`plaintiff must show: (1) the existence of a binding contract or agreement, (2) the
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`nonbreaching party performed its contractual obligations, (3) the other party failed to fulfill
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`its contractual obligations without legal excuse, and (4) the nonbreaching party suffered
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`11
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`

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`damages as a result of the breach. See National City Bank v. Erskine & Sons, 158 Ohio
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`St. 450, 110 N.E.2d 598 (1953); Garofalo v. Chicago Title Ins. Co., 104 Ohio App. 3d 95,
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`108, 661 N.E.2d 218, 226 (1995). Ohio’s cause of action for breach of contract has much
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`more than an “extra element” beyond those required for copyright infringement. Indeed,
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`the two causes of action have nothing in common. ASC’s cause of action for a declaratory
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`judgment regarding its rights pursuant to the Agreement, therefore, is not preempted by
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`federal copyright law.3
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`Nor is this result barred because the state court decision in the state contract matter
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`might have a preclusive effect on later copyright litigation. The general rule that federal
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`courts must give state court judgments the same preclusive effect those judgments would
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`have in a state court requires federal courts to respect the factual and legal decisions of
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`state courts in later copyright actions. State court decisions may even preclude a
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`subsequent action within the exclusive jurisdiction of the federal courts, such as a copyright
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`action. See Marrese v. American Acad. of Orthopaedic Surgeons, 470 U.S. 373 (1985);
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`Forry, Inc. v. Neundorfer, Inc., 837 F.2d 259 (6th Cir. 1988).
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`For these reasons, Paragon’s argument that the judgment of the state court does
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`not have preclusive effect under the doctrine of res judicata because the state court lacked
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`subject matter jurisdiction to hear the case is not well-taken.4
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`3 Similarly, in Gener-Villar, 417 F.3d at 206, the First Circuit found that a state court
`action sounding in contract was not identical to a copyright action and agreed with the trial
`court’s finding that it had jurisdiction to hear the contract action: “[W]e are dealing with a
`controversy of a contractual nature for which this Court does have jurisdiction.”
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`4 Indeed, despite Paragon’s argument to the contrary, federal courts must
`sometimes give preclusive effect to the decisions of state courts even when those courts
`were without subject matter jurisdiction to hear the case at issue. See Wright & Miller, 18A
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`12
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`C.
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`The state court denied Paragon leave to file its counterclaim
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`Paragon argues that because the state court denied Paragon’s attempt to file a
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`counterclaim against ASC, its counterclaims in the instant case are not barred by res
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`judicata. This argument is erroneous.
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`ASC contends that Paragon’s claims are barred both by res judicata and collateral
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`estoppel. Title 28 U.S.C. § 1738 requires a federal court to give a state court judgment the
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`same preclusive effect that judgment would have in a state court. When a federal court is
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`asked, therefore, to determine whether a state court’s judgment should be given preclusive
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`effect in an action in federal court, the federal court must apply the law of the state where
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`the prior judgment was rendered to determine whether and to what extent the state court
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`judgment should be given preclusive effect in the federal action. See Migra v. Warren City
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`Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984); Reithmiller v. Blue Cross & Blue Shield of
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`Mich., 824 F.2d 510, 511 n.1 (6th Cir. 1987).
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`ASC asks the court to give preclusive effect to the judgment of an Ohio court. In
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`Ohio, “[t]he doctrine of res judicata involves both claim preclusion (historically called
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`estoppel by judgment in Ohio) and issue preclusion (traditionally known as collateral
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`estoppel).” Grava v. Parkman Twp., 73 Ohio St. 3d 379, 381, 653 N.E.2d 226, 228 (1995).
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`The general rule of res judicata in Ohio is that “[a] valid, final judgment rendered upon the
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`merits bars all subsequent actions based upon any claim arising out of the transaction or
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`occurrence that was the subject matter of the previous action.” Id., 73 Ohio St. 3d at 379,
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`653 N.E.2d at 227 (syllabus by the court, overruling Whitehead v. General Tel. Co., 20
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`Fed. Prac. & Proc. Juris. 2d § 4428 (2005 update).
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`Ohio St. 2d 108, 254 N.E.2d 10 (1969)). The Ohio Supreme Court gives res judicata broad
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`effect:
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`In Natl. Amusements, Inc. v. Springdale (1990), 53 Ohio St. 3d 60, 62, 558 N.E.2d
`1178, 1180, we stated: "It has long been the law of Ohio that 'an existing final
`judgment or decree between the parties to litigation is conclusive as to all claims
`which were or might have been litigated in a first lawsuit' " (emphasis sic ) (quoting
`Rogers v. Whitehall [1986], 25 Ohio St. 3d 67, 69, 25 OBR 89, 90, 494 N.E.2d 1387,
`1388). We also declared that "[t]he doctrine of res judicata requires a plaintiff to
`present every ground for relief in the first action, or be forever barred from asserting
`it." Id.
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`Id., 73 Ohio St. 3d at 382, 653 N.E.2d at 229. For this reason, “[w]here a party is called
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`upon to make good his cause of action . . . , he must do so by all the proper means within
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`his control, and if he fails in that respect . . . , he will not afterward be permitted to deny the
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`correctness of the determination, nor to relitigate the same matters between the same
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`parties." National Amusements, 53 Ohio St. 3d at 62, 558 N.E.2d at 1180 (quoting
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`Covington & Cincinnati Bridge Co. v. Sargent, 27 Ohio St. 233 (1875) (paragraph one of
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`the syllabus)).
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`In the previous action between ASC and Paragon in the Cuyahoga County Court of
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`Common Pleas, Paragon attempted to file an amended answer and counterclaim on
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`December 30, 2003. ASC moved to strike this filing on January 15, 2004. On March 2,
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`2004 the court granted ASC’s motion to strike, stating the following:
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`DEFT’S. AMENDED ANSWER AND COUNTERCLAIM (FILED 12-30-03) WAS
`FILED WITHOUT LEAVE OF COURT. DEFENDANT’S HAVING FAILED TO
`ARTICULATE ANY GOOD REASON FOR FAILING TO FILE COUNTERCLAIM
`AND/OR ADDING PARTIES PETCHER AND EAGLEHOUSE IN THEIR ANSWER
`TO PLT.’S AMENDED COMPLAINT (FILED 12-2-03). DEFT. FAILED TO RAISE
`THIS AS AN ISSUE AT C.M.C. OF 12-12-03 WHEN A FIRM TRIAL DATE WAS
`SET IN THIS MATTER. DEFT’S WERE WELL AWARE OF PETCHER AND
`EAGLEHOUSE SINCE THE “AGREEMENT” REFERRED TO BY DEFTS. WAS
`ATTACHED TO PLT’S AMENDED COMPLAINT (FILED 10-17-03). THIS IS THE
`SAME AGREEMENT SITED [sic] IN PARAGRAPH 6, FOOTNOTE 3 OF
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`DEFENDANT’S REPLY BRIEF INSTANTER. THOUGH DEFT’S ANSWER TO
`AMENDED COMPLAINT LIST [sic] TWELVE AFFIRMATIVE DEFENSES IT FAILS
`TO STATE THERE WERE ADDITIONAL PARTIES NECESSARY FOR PROPER
`ADJUDICATION OF THIS MATTER. NEVER THE LESS [sic] THE COURT IN THE
`INTEREST OF SUBSTANTIAL JUSTICE WILL GRANT THE DEFT. LEAVE TO
`FILE A COUNTERCLAIM ON BEHALF OF DEFT. PARAGON DATA SYSTEMS
`INC., [sic] ONLY VS. PLT. AUTOMATED SOLUTIONS CORP. BY 3-15-04.
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`Docket entry, 03/02/2004, Automated Solutions Corp. v. Paragon Data Sys., Cuyahoga
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`County, CV-03-511012 (Ct. C. Pl. Ohio), Exh. A, p. 7. Paragon did not attempt to file its
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`counterclaim until it filed a motion for leave to file a counterclaim instanter on April 27,
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`2004. On July 27, 2004 the court denied Paragon leave to file its counterclaim.
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`That Paragon was denied leave to file a counterclaim in the state court case has no
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`effect on whether this court should apply res judicata to those claims that Paragon could
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`have brought as counterclaims. Paragon had an opportunity in the state court action to
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`raise counterclaims related to its rights under the Agreement and failed timely to avail itself
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`of its opportunity. Any claim that Paragon could have raised will be barred by res judicata
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`if the claim would have been barred had Paragon actually raised it in the state court.
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`The Sixth Circuit has found that the claim preclusive effect of res judicata has four
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`elements in Ohio:
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`(1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2)
`a second action involving the same parties, or their privies, as the first; (3) a second
`action raising claims that were or could have been litigated in the first action; and (4)
`a second action arising out of the transaction or occurrence that was the subject
`matter of the previous action.
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`Hapgood v. City of Warren, 127 F.3d 490, 493 (6th Cir. 1997). The state court decision
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`regarding ASC’s rights under the Agreement was a prior final, valid decision on the merits
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`by a court of competent jurisdiction, and the instant case is a second action involving the
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`same parties. Thus, to the extent that Paragon raises claims that were litigated or could
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`have been litigated in the previous state court action and arise out of the transaction or
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`occurrence that was the subject matter of that previous actio