API Holdings, LLC v. Frost Cummings Tidwell Group, LLC , 2014 Ala. LEXIS 152 ( 2014 )

REL: 09/26/2014
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SUPREME COURT OF ALABAMA
SPECIAL TERM, 2014
____________________
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____________________
Ex parte Tommy Sundy
PETITION FOR WRIT OF MANDAMUS
(In re: API Holdings, LLC
v.
Frost Cummings Tidwell Group, LLC)
(Jefferson Circuit Court, CV-12-902502)
MURDOCK, Justice.
Tommy Sundy petitions this Court for a writ of mandamus
directing the Jefferson Circuit Court to dismiss third-party
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claims asserted against him by the Frost Cummings Tidwell
Group, LLC ("FCT"), an accounting firm. We deny the petition.
I. Facts and Procedural History
In June 2005, Adams Produce Company, Inc. ("APCI"),
purchased Crestview Produce of Destin, Inc., from Sundy. As
part of the transaction, APCI and Sundy executed a promissory
note in the amount of $850,000. Sundy became an employee of
APCI. FCT alleges that, based on representations from APCI
and Sundy, certain budget and bonus projections were set for
APCI, but those goals were not met. Because of the failure to
meet those projections, Sundy was not entitled to bonuses that
had been paid to him throughout 2009. With the alleged help
and direction of FCT, APCI recharacterized the bonuses as
repayments of principal on the promissory note. The
nonpayment of certain amounts to Sundy in the context of this
recharacterization had the effect of increasing APCI's income
and decreasing its indebtedness. APCI also allegedly entered
into an oral, undocumented agreement with Sundy stipulating
that it would make him whole in future years for the forfeited
bonus payments.
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In 2009, APCI's shareholders decided to sell the company
to API Holdings, LLC. One step in that transaction involved
APCI's creating Adams Produce Company, LLC ("APC"). Another
step in the transaction involved APCI's retaining FCT in March
2010 to perform an audit and to make a report concerning
APCI's 2009 financial statements ("the audit report"). FCT
completed the audit and submitted the audit report to APCI in
September 2010.1 FCT admits in its third-party complaint that
it investigated the recharacterization of bonuses paid to
Sundy and that it confirmed in the audit report that the
recharacterization was correct. FCT denies that it had any
knowledge of the side agreement between APCI and Sundy to
reimburse him for the forfeited bonuses in future years.
Pursuant to an "Asset Contribution Agreement" executed on
September 3, 2010, APCI transferred all of its assets and
liabilities to APC. On the same day, API Holdings entered
into a "Membership Interest Purchase Agreement" pursuant to
which API Holdings purchased all, or a controlling part of,
the membership interests in APC for a total purchase price of
1
FCT also performed an audit for APC the following year
for the 2010 fiscal year, and its report for that audit
apparently contained the same recharacterization of the
bonuses, affecting APC's financial outlook.
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$20,490,000. In the purchase agreement, API Holdings received
assurances that all aspects of APC's financial condition had
been disclosed to it through the audit report submitted by
FCT.
API Holdings alleges that, following its purchase of APC,
it discovered that, contrary to representations made by FCT in
the audit report, APCI's financial statements were fraudulent,
causing API Holdings to believe that APC was worth more than
it actually was.
On August 9, 2012, API Holdings sued FCT in the Jefferson
Circuit Court asserting claims of negligent misrepresentation,
auditing malpractice, fraud, and other claims of professional
malfeasance. In general, API Holdings alleged that it had
relied upon the audit report when it agreed to purchase APC
and when it agreed upon the purchase price. Among several
other claims, API Holdings alleged that FCT had failed to
uncover misrepresentations by Sundy and APCI and that FCT had
acted fraudulently in confirming the recharacterization of
Sundy's bonuses as payments on principal of the promissory
note.
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On April 27, 2012, APC filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court for the
Northern District of Alabama ("the bankruptcy court"). On
October 19, 2012, APC filed an adversarial complaint in the
bankruptcy court against FCT, alleging that FCT's audit work
had painted a false financial picture of APC upon which APC
had relied in continuing to operate its business even after
reaching the point of insolvency.2 APC alleged that it had
continued to operate past the point of insolvency and had
incurred additional debt that it otherwise would not have
incurred but for its reliance upon representations provided by
FCT in the audit report (i.e., the report applicable to 2009)
and in the similar report prepared by FCT with respect to
APC's 2010 fiscal-year activities. Specifically, APC alleged
that the audit reports indicated that APC's cash position was
more favorable than it actually was.
On March 18, 2013, FCT filed a third-party complaint in
the bankruptcy court against Sundy and others. FCT's
complaint alleged various theories under Alabama law as bases
2
APC included allegations regarding FCT's audit work for
fiscal year 2010 because, according to its complaint, "[t]he
2010 Audit Report was based, in part, on the 2009 Financial
Statements and the 2009 Audit Report." See supra note 1.
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for FCT to "recover over" against Sundy. Those claims, as
contemplated by Rule 14(a)(1), Fed. R. Civ. P., are "for all
or part of the [plaintiff's] claim against [the third-party
plaintiff]," i.e., APC's claims against FCT (for the injury
suffered by APC in incurring additional debt and eventually
suffering insolvency).
On March 21, 2013, three days after filing its third-
party complaint in the federal action in the bankruptcy court,
FCT filed a third-party complaint against Sundy and others in
the Jefferson Circuit Court case filed by API Holdings.
Again, as contemplated by Rule 14(a), Ala. R. Civ. P., FCT
filed its third-party claims in the Jefferson Circuit Court
action for the purpose of recovering from Sundy "for all or
part of the plaintiff's claim against the third-party
plaintiff" in that case, i.e., API Holdings' claims against
FCT (for the investment losses suffered by API Holdings
following its purchases of APC). Of course, in the case of
the Jefferson Circuit Court action, the plaintiff is API
Holdings, not APC, and the claims it asserted for its
investment losses were, of course, not the same as the claims
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held by APC and asserted by APC as the plaintiff in the
federal action in the bankruptcy court.
Sundy subsequently filed in the Jefferson Circuit Court
a motion to dismiss FCT's third-party complaint in that case
on the basis of § 6-5-440, Ala. Code 1975, Alabama's abatement
statute. Following the submission of arguments and a hearing
on the motion, the circuit court denied the motion on June 7,
2013. Sundy timely filed a petition for a writ of mandamus
seeking to have this Court direct the circuit court to vacate
its judgment denying the motion to dismiss and to order the
circuit court to dismiss FCT's claims against Sundy asserted
in its third-party complaint in the Jefferson Circuit Court
action.
On July 24, 2013, this Court ordered answers and briefs
to the petition. On July 30, 2013, FCT filed in this Court a
motion to stay its response time because it had filed in the
bankruptcy court a motion to dismiss APC's complaint against
FCT pending in that court. This Court granted the motion to
stay the response time. Subsequently, the bankruptcy court
denied FCT's motion to dismiss APC's complaint, and FCT filed
its response to Sundy's mandamus petition in this Court.
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II. Standard of Review
"'[A] writ of mandamus is an extraordinary
remedy, which requires the petitioner to demonstrate
a clear, legal right to the relief sought, or an
abuse of discretion.' Ex parte Palm Harbor Homes,
Inc., 798 So. 2d 656, 660 (Ala. 2001). Mandamus is
the appropriate remedy to correct a trial court's
failure to properly apply § 6-5-440. See Ex parte
Chapman Nursing Home, Inc., 903 So. 2d 813 (Ala.
2004); Ex parte Breman Lake View Resort, L.P., 729
So. 2d 849, 852 (Ala. 1999)."
Ex parte J.E. Estes Wood Co., 42 So. 3d 104, 108 (Ala. 2010).
"The standard for deciding whether two actions may
proceed in different courts is similar to the
standard applied for determining the applicability
of the doctrine of res judicata; that is, whether
the issues in the two actions are the same and
whether the same evidence would support a recovery
in both actions."
Ex parte Brooks Ins. Agency, 125 So. 3d 706, 710 (Ala. 2013).
III. Analysis
Section 6-5-440, Ala. Code 1975, Alabama's abatement
statute, provides:
"No plaintiff is entitled to prosecute two
actions in the courts of this state at the same time
for the same cause and against the same party. In
such a case, the defendant may require the plaintiff
to elect which he will prosecute, if commenced
simultaneously, and the pendency of the former is a
good defense to the latter if commenced at different
times."
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The parties do not dispute that § 6-5-440 applies to abate a
State-court action on the ground that the same action was
previously filed and remains pending in a federal court in
this State. See Ex parte J.E. Estes Wood Co., 42 So. 3d at
108 (quoting Ex parte Norfolk Southern Ry., 992 So. 2d 1286,
1289 (Ala. 2008)) (stating that "'[t]his Court has previously
held that an action pending in a federal court falls within
the coverage of this Code section'").
This Court previously has explained the history behind
the prohibition codified in § 6-5-440:
"'Section 6-5-440, as initially
codified in Ala. Code 1907, § 2451, was "a
transcript of section 4331 of the Civil
Code of Georgia." Ex parte Dunlap, 209
Ala. 453, 455, 96 So. 441, 442 (1923). See
current version at Ga. Code Ann. § 9-2-5(a)
(Michie 1982). However, these statutes
merely codified the principle expressed in
the common-law maxim: "Nemo debet bis
vexari (si constet curiae quod sit) pro una
et eadem causa," that is: "No man ought to
be twice troubled or harassed (if it appear
to the court that he is), for one and the
same cause." O'Barr v. Turner, 16 Ala.
App. 65, 67-68, 75 So. 271, 274 (1917),
cert. denied, 200 Ala. 699, 76 So. 997
(1917). This rule was well established in
Alabama long before it was first codified
in Ala. Code 1907, § 2451. In Foster v.
Napier, 73 Ala. 595 (1883), for example,
this Court explained:
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"'"The doctrine is thus stated in
1 Bac. Ab. 28, M.: 'The law
abhors multiplicity of actions;
and, therefore, whenever it
appears on record, that the
plaintiff has sued out two writs
against the same defendant, for
the same thing, the second writ
shall abate; for if it were
allowed that a man should be
twice arrested, or twice attached
by his goods for the same thing,
by the same reason he might
suffer in infinitum; ... if there
was a writ in being at the time
of suing out the second, it is
plain the second was vexatious
and ill ab initio.'"
"'Foster v. Napier, 73 Ala. 595, 603 (1883)
(quoting 1 M. Bacon, A New Abridgment of
the Law 28 (1843)). In fact, the rule was
well established as early as 1461, for it
was thoroughly discussed and applied in
Y.B. 39 Henry VI, pl. 12 (1461), case
quoted in toto, Commonwealth v. Churchill,
5 Mass. 174 (1809); see also Sparry's Case,
5 Coke 61a., 77 Eng. Rep. 148 (K.B.
1591).'"
Ex parte J.E. Estes Wood Co., 42 So. 3d at 108-09 (quoting
Ex parte State Mut. Ins. Co., 715 So. 2d 207, 213 (Ala. 1997)
(emphasis omitted)).
The Court also explained in Ex parte J.E. Estes Wood Co.
that
"the principle codified by the statute 'is founded
upon the policy of discouraging a multiplicity of
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suits -- of protecting the defendant from
oppression, [and] from the grievance of double
vexation for the same cause or thing.' Foster v.
Napier, 73 Ala. 595, 606 (1883). '[W]hen a
defendant is twice impleaded by the same plaintiff,
for the same thing, the oppression and vexation is
not matter of fact; it is a conclusion of law, and
is not dependent upon an inquiry into the actual
circumstances of the two cases.' 73 Ala. at 603."
42 So. 3d at 111.
Sundy's argument that the abatement statute warrants
dismissal of FCT's third-party complaint in the Jefferson
Circuit Court action is misplaced. As noted, the plaintiffs
in the federal action and in the State action are different.
Each plaintiff is the "'master of [its own] complaint.'"
Ex parte J.E. Estes Wood Co., 42 So. 3d at 111 (quoting Noland
Health Servs., Inc. v. Wright, 971 So. 2d 681, 693 (Ala.
2007)). Each asserts its own separate and distinct claims
against FCT. In each of those actions, the third-party
plaintiff, FCT, is authorized by Rule 14(a) to expand the
action by way of a third-party claim, but only to the limited
extent of seeking recovery against a third-party defendant
"for all or part of the plaintiff's claim against the third-
party plaintiff." Rule 14(a) (emphasis added). That is, FCT
could not seek to recover from Sundy in the State action
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(initiated by API Holdings for the purpose of vindicating its
rights and recovering its losses) losses for which FCT might
potentially be held responsible in the federal action
(initiated by APC for the purpose of vindicating its rights
and recovering its losses). See, e.g., City of Orange Beach
v. Scottsdale Ins. Co., 166 F.R.D. 506, 510 (S.D. Ala. 1996),
aff'd, 113 F.3d 1251 (11th Cir. 1997) ("'Rule 14(a) does not
allow the defendant to assert a separate and independent claim
even though the claim arises out of the same general set of
facts as the main claim.' United States v. Olavarrieta, 812
F.2d 640, 643 (11th Cir.), cert. denied, 484 U.S. 851, 108
S. Ct. 152, 98 L. Ed. 2d 107 (1987)."); 3 James Wm. Moore,
Moore's Federal Practice § 14.07 (2d ed. 1995) ("Thus, an
impleader claim cannot assert any and all rights to recovery
arising from the same transaction or occurrence as the
underlying action." (as quoted in 2 Law & Prac. of Ins.
Coverage Litg. § 15:30 note 5 (June 2014))).
FCT is, itself, subject to suit by two different primary
plaintiffs –- API Holdings and APC –- in two different
lawsuits. Just as FCT may be held to account in two separate
actions by two separate plaintiffs, it may seek separate
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recoveries against a third party in relation to the different
claims and losses it faces in each of those lawsuits.
IV. Conclusion
FCT's third-party claims against Sundy in the State
action are not barred by the abatement statute. The Jefferson
Circuit court properly declined to dismiss those claims.
Therefore, we deny the petition for a writ of mandamus.
PETITION DENIED.
Moore, C.J., and Bolin, Main, and Bryan, JJ., concur.
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