Tri-State Truck Insurance v. First National Bank of Wamego

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT April 23, 2014
Elisabeth A. Shumaker
Clerk of Court
TRI-STATE TRUCK INSURANCE,
LTD.; TST, LTD.; ANDREW B.
AUDET,
Plaintiffs-Appellants, No. 13-3097
(D.C. No. 2:12-CV-02291-KHV-KMH)
v. (D. Kan.)
FIRST NATIONAL BANK OF
WAMEGO,
Defendant-Appellee.
ORDER AND JUDGMENT*
Before KELLY, ANDERSON, and MATHESON, Circuit Judges.
Plaintiffs Tri-State Truck Insurance, TST, and Andrew B. Audet (“Plaintiffs”)
appeal from dismissal of their complaint on res judicata grounds. Exercising
jurisdiction over this diversity case under 28 U.S.C. § 1291, we affirm.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
I. BACKGROUND
A. The Loans and UCC Filings
Mr. Audet is the chairman, chief executive officer, and sole stockholder of
Tri-State and TST. In June 2006, Aleritas (previously known as Brooke Credit
Corporation (“BCC”)), loaned Tri-State $8,216,000 (Loan No. 5483). Mr. Audet
guaranteed the loan. On the same day, Aleritas loaned Mr. Audet $436,000 (Loan
No. 5484). Also on that day, other lenders agreed with Aleritas to purchase
participating interests in the loans. Defendant First National Bank of Wamego
(“FNBW”) purchased a participating interest of 8.52 percent in Loan No. 5483.
Shortly thereafter, Aleritas filed a UCC financing statement in Kansas giving
notice of its secured interest in Tri-State’s collateral. Aleritas also filed UCC
financing statements in Pennsylvania and North Dakota giving notice of its secured
interests in the collateral of Tri-State and Mr. Audet.
In 2007, Mr. Audet pledged TST stock to secure his indebtedness to Aleritas.
Aleritas filed UCC financing statement amendments adding TST as a debtor in
Kansas, North Dakota, and Pennsylvania.
Aleritas administered Loan Nos. 5483 and 5484 until mid-September 2008,
when it experienced financial difficulties and discontinued normal business
operations. It assigned FNBW the payment processing and loan administration duties
for both loans. Aleritas advised Plaintiffs of FNBW’s duties but said it had not
transferred or sold the loans.
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In May, June, and July 2009, FNBW filed amendments to the UCC financing
statements in Kansas, Pennsylvania, and North Dakota that purported to change the
secured party of record from Aleritas to FNBW. The Kansas amendment listed BCC
as the “[a]uthorizing party” and indicated that all collateral had been assigned to
FNBW. Aplt. App., Vol. I at 31. The Pennsylvania amendments listed BCC dba
Aleritas as the secured party of record that was “authorizing” the amendments and
indicated a full assignment of collateral to FNBW. Id. at 24-25. The North Dakota
amendments listed BCC as the secured party of record that was “authorizing” the
amendments and indicated a full assignment of collateral to FNBW. Id. at 42-44.
B. The Litigation
In September 2009, Plaintiffs sued Aleritas and Brooke Capital Advisors
(“BCA”)1 in Pennsylvania state court, claiming breach of contract, fraudulent
inducement, and negligent misrepresentation arising out of the initial loan
agreements between Aleritas and Plaintiffs. Aleritas and BCA did not appear. The
court entered a default judgment for the Plaintiffs. It awarded damages and rescinded
the loans and all loan documents of any kind, including the UCC statements.
In December 2009, after the Pennsylvania judgment, Plaintiffs sued FNBW in
Kansas federal district court (“Tri-State I”). Based on the rescission of their loan
agreements with Aleritas, Plaintiffs asked the court to declare that (1) they owed no
further obligations to FNBW or any other participating lender; (2) all security in
1
Aleritas and BCC were subsidiaries of BCA.
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FNBW’s possession or control be returned to Plaintiffs; and (3) all UCC filings be
cancelled or terminated. FNBW counterclaimed for breach of contract and
declaratory judgment. In August 2011, the district court granted summary judgment
for Plaintiffs and against FNBW.2
In May 2012, Plaintiffs again sued FNBW in Kansas federal district court
(“Tri-State II”), asserting UCC violations, injurious falsehood, and slander of title—
all based on Plaintiffs’ allegations that FNBW falsely represented BCC authorized
the amendments to the UCC filing statements in Kansas, Pennsylvania, and North
Dakota.
FNBW moved to dismiss, arguing res judicata barred the Tri-State II claims
because Plaintiffs could and should have asserted them in Tri-State I. The district
court agreed. Alternatively, the district court found that Plaintiffs should have
asserted these claims as compulsory counterclaims to FNBW’s counterclaims in Tri-
State I. Plaintiffs now appeal.
2
In August 2013, this court affirmed summary judgment in favor of Plaintiffs
on Loan No. 5484, but reversed the judgment in their favor on Loan No. 5483 and
remanded the case to the district court. See Tri-State Truck Ins., Ltd. v. First Nat’l
Bank of Wamego, Kan., 535 F. App’x 653, 662 (10th Cir. 2013). On March 18, 2014,
the district court entered judgment in favor of FNBW on the remanded claim.
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II. DISCUSSION
A. Standard and Scope of Review, Res Judicata Law
We review de novo the district court’s conclusion that res judicata bars
Plaintiffs’ claims. See Valley View Angus Ranch, Inc. v. Duke Energy Field Servs.,
Inc., 497 F.3d 1096, 1100 (10th Cir. 2007). We limit our review of FNBW’s motion
to dismiss to the complaint’s allegations, its exhibits, and the Tri-State I record. The
district court properly took judicial notice of the latter. See Tal v. Hogan, 453 F.3d
1244, 1264 n.24 (10th Cir. 2006).
FNBW bears the factual burden on the res judicata affirmative defense. See
Nwosun v. Gen. Mills Rests., Inc., 124 F.3d 1255, 1257 (10th Cir. 1997). “Generally
res judicata is an affirmative defense to be pleaded in the defendant’s answer.
However, when all relevant facts are shown by the court’s own records, of which the
court takes notice, the defense may be upheld on a Rule 12(b)(6) motion without
requiring an answer.” Day v. Moscow, 955 F.2d 807, 811 (2d Cir. 1992) (citation
omitted).
As for the applicable law,
[w]ithin the res judicata framework, this court applies federal law to
determine the effect of a previous federal judgment, even if that
judgment was issued in a case based on diversity jurisdiction. However,
the best federal rule for the claim-preclusive effect of a federal diversity
judgment is to adopt the law that would be applied by state courts in the
State in which the federal diversity court sits.
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Hartsel Springs Ranch of Colo., Inc. v. Bluegreen Corp., 296 F.3d 982, 986
(10th Cir. 2002) (citation and internal quotation marks omitted). Kansas law
therefore guides our res judicata analysis.
The parties advance two versions of the test to determine whether a claim
brought in a later action should be precluded under Kansas law. FNBW’s test is:
“‘(1) same claim; (2) same parties; (3) claims were or could have been raised; and
(4) a final judgment on the merits.’” State v. Martin, 279 P.3d 704, 706 (Kan. 2012)
(quoting Winston v. State Dep’t of Soc. & Rehab. Servs., 49 P.3d 1274, 1285 (Kan.
2002)), cert. denied, 134 S. Ct. 114 (2013). Plaintiffs’ test is: “‘(1) identity in the
thing sued for, (2) identity of the cause of action, (3) identity of persons and parties
to the action, and (4) identity in the quality of persons for or against whom claim is
made.’” Venters v. Sellers, 261 P.3d 538, 546 (Kan. 2011) (quoting Waterview
Resolution Corp. v. Allen, 58 P.3d 1284, 1290 (Kan. 2002)).
The district court found no “Kansas cases discussing, analyzing or even
acknowledging the fact that courts sometimes articulate the test differently,” Aplt.
App., Vol. I at 107 n.25, and neither have we. The district court ultimately chose to
employ FNBW’s test, agreeing with the Kansas Supreme Court that this version is
“‘[m]ost plainly stated.’” Id. (quoting In re Fleet, 272 P.3d 583, 589 (Kan. 2012)).
Although Plaintiffs contend this use of the “same claim” test “failed to observe the
nuances of claim preclusion law in Kansas,” Aplt. Br. at 13, both tests come from
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Kansas Supreme Court decisions, and Plaintiffs have not offered case authority to
show its test is more appropriate.
We see little or no substantive difference between the tests and agree with the
district court’s decision to use the more plainly stated one. We note that although
Plaintiffs’ version appears to be missing two elements contained in FNBW’s—
whether the claim could have been raised before and whether there was a final
judgment on the merits—both have been expressed as part of the res judicata analysis
in Kansas cases employing Plaintiffs’ version. See, e.g., Venters, 261 P.3d at 546
(“In addition, res judicata requires a prior final judgment on the merits.” (internal
quotation marks omitted)); Dexter v. Brake, 269 P.3d 846, 852-53 (Kan. App. 2012)
(“The doctrine of res judicata (or claim preclusion) prohibits a party from asserting in
a second lawsuit any matter that might have been asserted in the first lawsuit.”
(internal quotation marks omitted)).
B. Contested Res Judicata Elements
The parties contest two res judicata elements: (1) whether the Tri-State II
claims are the same as the Tri-State I claims, and (2) whether the Tri-State II claims
could have been raised in Tri-State I.
1. Same Claim under the Transactional Approach
a. Relying on the transactional approach
The district court used the transactional approach from the Restatement
(Second) of Judgments to conclude that “the term ‘claim’ connotes a natural grouping
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or common nucleus of operative facts that are woven together as to constitute a single
claim.”3 Aplt. App., Vol. 1 at 108. It determined this case concerns the same claims
or causes of action as the Tri-State I case because they arose from the same
transactions. Plaintiffs argue the district court erred because Kansas has not adopted
the transactional approach.
Kansas has not expressly adopted or rejected the transactional approach, but
this court has recognized that Kansas courts have made statements approving of it.
See Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354, 360-61 (10th Cir. 1996).
Although they have not always explicitly referred to the doctrine, Kansas courts have
employed it. See, e.g., O’Keefe v. Merrill Lynch & Co., 84 P.3d 613, 618-19 (Kan.
Ct. App. 2004) (concluding that same claim was raised in second suit because it arose
out of same operative facts as first suit, even though claims were based on different
legal theories arising out of those facts). Based on the foregoing, we conclude the
district court did not err.
3
The Restatement (Second) of Judgments § 24 (1982) explains:
(1) When a valid and final judgment rendered in an action extinguishes
the plaintiff’s claim pursuant to the rules of merger or bar . . . , the
claim extinguished includes all rights of the plaintiff to remedies against
the defendant with respect to all or any part of the transaction, or series
of connected transactions, out of which the action arose.
(2) What factual grouping constitutes a “transaction”, and what
groupings constitute a “series”, are to be determined pragmatically,
giving weight to such considerations as whether the facts are related in
time, space, origin, or motivation, whether they form a convenient trial
unit, and whether their treatment as a unit conforms to the parties’
expectations or business understanding or usage.
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Under the transactional approach, a claim “is defined in factual terms so that
the same factual ‘transactions’ or ‘series of connected transactions’ constitute a
claim, regardless of the number of substantive legal theories that may be available to
the plaintiff based on those facts.” Stanfield v. Osborne Indus., Inc., 949 P.2d 602,
611 (Kan. 1997). When looking at “whether the facts are so woven together as to
constitute a single claim,” courts should consider “their relatedness in time, space,
origin, or motivation, and whether taken together, they form a convenient unit for
trial purposes.” Id. (internal quotation marks omitted).
b. Applying the transactional approach
The district court said the Plaintiffs’ Tri-State II claims were “directly
connected to their claims in Tri-State I.” Aplt. App., Vol. I at 108. It explained the
Plaintiffs in Tri-State II sought damages from the filing of false UCC amendments
related to Loans 5483 and 5484, and they sought in Tri-State I the cancellation of all
UCC filings associated with those same loans. “In other words, in Tri-State I,
plaintiffs sought to cancel or terminate the same UCC amendments for which they
now seek damages.” Id. at 109.
Plaintiffs argue the claims in the two cases are different because no facts or
legal issues about the amendments were developed or presented in Tri-State I.
Moreover, they contend the facts were different because the Tri-State II claims
involve alleged misrepresentations by FNBW when it filed the UCC amendments and
no such allegations were made in Tri-State I. But, as the district court recognized,
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the litigation in Tri-State I and Tri-State II “involve[d] the same series of factual
transactions: the underlying loans, [FNBW’s] involvement as participating lender in
the loans, Aleritas’s assignment of loan administration duties to [FNBW] and the
scope of [FNBW’s] rights and interests in the loans.” Id.
In Tri-State I, the Plaintiffs sought a declaration they had no obligations to
FNBW under their loan agreements with Aleritas because the Pennsylvania court had
rescinded those agreements. They sought to cancel any UCC amendments related to
those loans. FNBW counterclaimed for breach of contract, arguing Aleritas had
assigned all of its rights and duties under the loans to FNBW in September 2008 as
part of the loan servicing assignment agreement. FNBW therefore asserted it had
standing to enforce the terms of the loans against Plaintiffs. In Tri-State II, Plaintiffs
argued FNBW lacked authority to amend the UCC filings to name FNBW as the
secured party in place of Aleritas.
A common question in both actions was the scope of FNBW’s interests in the
loans. Tri-State I focused on whether the assignment of loan-servicing duties
included all of Aleritas’ rights under the loans, thereby giving FNBW standing to
enforce the loans. As the district court noted, “[i]ntrinsically related” to that issue
was “whether [the scope of the assignment] included an assignment of Aleritas’s
secured interests under the loans,” and “[t]he resolution of that issue is directly
related to whether [FNBW] made false statements in the UCC filings.” Id. at 109-10.
The court therefore concluded that “[o]n this record, . . . substantial overlap exists
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between the facts in [Tri-State II] and the facts in Tri-State I such that they would
form a convenient unit for trial purposes.” Id. at 110. We agree with the district
court’s analysis and its determination under the transactional approach that Tri-State
II and Tri-State I involved the same claim for res judicata purposes.
2. Claims Could Have Been Raised in Prior Action
The district court also determined Plaintiffs could have alleged their Tri-State
II claims in Tri-State I. It noted the amendments to the UCC filing statements were
filed months before Plaintiffs filed their Tri-State I complaint. The court found
persuasive FNBW’s argument that Plaintiffs must have known about the UCC filings
that substituted FNBW as the secured party of record because Plaintiffs otherwise
would have had no need to ask the Tri-State I court to cancel those filings. The
district court also concluded that Plaintiffs had constructive knowledge of the filings
because they were matters of public record. It therefore determined “the facts on
their face suggest that plaintiffs could have filed the claims in Tri-State I.” Id. at
113.
We agree Plaintiffs had actual or constructive knowledge of the UCC
amendments before they filed Tri-State I. They should at least be charged with
constructive knowledge because the UCC filings were public records. Moreover,
Plaintiffs should have learned of them when preparing their Tri-State I request to
cancel or terminate the filings. As the Seventh Circuit has explained, “[w]hen a
litigant files a lawsuit, the courts have a right to presume that he has done his legal
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and factual homework. It would undermine the basic policies protected by the
doctrine of res judicata to permit the appellants to once again avail themselves of
judicial time and energy while another litigant, who has yet to be heard even once,
waits in line behind them.” Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589, 596
(7th Cir. 1986).
Considering Plaintiffs’ knowledge of the UCC amendments along with other
facts in the record, we conclude a reasonable commercial borrower exercising due
diligence should have discovered the Tri-State II claims and alleged them in Tri-State
I. See, e.g., Capitol Hill Grp. v. Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d
485, 491 (D.C. Cir. 2009) (concluding that plaintiff’s claims were barred because it
“would have discovered the specifics of each of the two claims, had it acted with
due diligence”); L-Tec Elecs. Corp. v. Cougar Elec. Org., Inc., 198 F.3d 85, 88
(2d Cir. 1999) (noting that facts and events arose prior to the filing of the original
complaint and that “claim preclusion applies unless the facts . . . could not have been
discovered earlier through plaintiff’s due diligence”); Feminist Women’s Health Ctr.
v. Codispoti, 63 F.3d 863, 867 (9th Cir. 1995) (“[R]es judicata applies to every point
which properly belonged to the subject of the litigation, and which the parties,
exercising reasonable diligence, might have brought forward at the time”) (internal
quotation marks omitted)).
We reach this result by comparing FNBW’s role in September 2008 with the
portrayal of its role in the 2009 UCC amendments. In September 2008, Aleritas and
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FNBW sent a letter to Plaintiffs stating that “payment servicing of your loans (#5483
and #5484) is transferred to” FNBW but that the “loans have not been transferred or
sold by Aleritas.” Aplt. App., Vol. II at 184. By July 2009, FNBW had amended all
of the relevant UCC filings to show it had replaced Aleritas as the secured party in
interest on the loans and that Aleritas had authorized this change. FNBW’s
transformed role—from mere servicer of the loans in September 2008 to the secured
party on the loans in July 2009—should have prompted the Plaintiffs to ask Aleritas
for an explanation. This in turn should have led them to discover whether the
statements in the amendments were untrue, as Plaintiffs now allege. Although
FNBW does not fully develop this argument in its brief, we may affirm on any
ground supported by the record, see Bolden v. PRC Inc., 43 F.3d 545, 548 (10th Cir.
1994).
We recognize what a plaintiff should have known often is a factual question
for a jury. See Sawtell v. E.I. du Pont de Nemours & Co., 22 F.3d 248, 252 (10th Cir.
1994). But “if the essential facts are undisputed and allow only one conclusion”—in
this case, that Plaintiffs knew or should have known whether FNBW made
misrepresentations in the UCC amendments—then judgment in favor of FNBW is
proper. Id. We agree with the district court that Plaintiffs could have brought their
claims in Tri-State I.
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D. Declaratory Judgment Exception
Plaintiffs also assert the district court erred in not applying the declaratory
judgment exception to res judicata. Under this exception, “the preclusive effect of a
declaratory judgment action applies only to the ‘matters declared’ and to ‘any issues
actually litigated . . . and determined in the action.’” Duane Reade, Inc. v. St. Paul
Fire & Marine Ins. Co., 600 F.3d 190, 196 (2d Cir. 2010) (quoting Restatement
(Second) of Judgments § 33). Kansas courts have not recognized this exception, but
it would otherwise not apply to this case.
The declaratory judgment exception applies “when the prior action involved
only a request for declaratory relief.” Id. (internal quotation marks omitted). If any
party seeks coercive relief—whether in a claim or counterclaim—then the declaratory
judgment exception does not apply. See id. (refusing to apply the declaratory
judgment exception where plaintiff sought only declaratory relief but defendant had
filed counterclaim for coercive relief).
In Tri-State I, FNBW and Plaintiffs each sought coercive relief. FNBW
asserted a claim for breach of contract and sought damages. Although Plaintiffs say
they asked only for declaratory relief, the district court ordered FNBW to return any
security to Plaintiffs and to cancel or terminate the UCC filings, which constituted
injunctive, not declaratory relief. As we have explained, “this court defines
injunctive relief as all equitable decrees compelling obedience under the threat of
contempt.” Westar Energy, Inc. v. Lake, 552 F.3d 1215, 1222 (10th Cir. 2009)
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(internal quotation marks omitted). Whether or not the district court in Tri-State I
considered the relief to have been injunctive, we must look to the substance of the
underlying order. See id.
Plaintiffs’ post-judgment conduct demonstrates they considered the relief to be
injunctive. Several weeks after judgment was entered in Tri-State I, Plaintiffs’
counsel wrote a letter to FNBW stating that FNBW had not “complied with the
Court’s Order” because no security documents had been returned and the UCC filings
had not been cancelled. Aplt. App, Vol. II at 286. The letter directed FNBW to
return all security documents described in the court’s mandate and to confirm that all
UCC filings referenced in the mandate had been canceled or terminated by a date
certain. The letter further stated that “[f]ailure to comply with the Court’s mandates
will require us to file a motion seeking a further order of the Court finding FNBW to
be in contempt.” Id.
Because the court’s order compelled FNBW to take action under the threat of
contempt, it provided injunctive or coercive relief. The declaratory judgment
exception is therefore inapplicable. See, e.g., Laurel Sand & Gravel, Inc. v. Wilson,
519 F.3d 156, 164 (4th Cir. 2008) (“By asking for coercive relief (the injunction) in
the first suit, the plaintiff lost the right to invoke the declaratory judgment
exception.” (internal quotation marks omitted)).
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III. CONCLUSION
For the foregoing reasons, we conclude res judicata bars Plaintiffs’ claims in
Tri-State II and the declaratory judgment exception is not applicable.4 We therefore
affirm the district court’s judgment.
ENTERED FOR THE COURT,
Scott M. Matheson, Jr.
Circuit Judge
4
Given our holding, we need not reach the district court’s alternative ruling
that Fed. R. Civ. P. 13(a) required Plaintiffs to assert their Tri-State II claims in
response to FNBW’s counterclaims in Tri-State I.
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