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Bank of West v. Whitney

United States District Court, D. Utah

October 10, 2017

BANK OF THE WEST, Plaintiff,
v.
NEWELL K. WHITNEY; CONNIE T. WHITNEY; KYLE R. WHITNEY; TANIA W. CLARK; Newell and Connie Whitney, Trustees of THE NEWELL AND CONNIE WHITNEY TRUST; FOX RUN, LLC; NC WHITNEY ALPINE, LLC; NC WHITNEY EQUIPMENT, LLC; FR-1AB, LLC; FR-2AB, LLC; FR-3AB, LLC; FR-4AB, LLC; FR-5AB, LLC; FR-6AB, LLC; FR-7AB, LLC; FR-8AB, LLC; FR-9AB, LLC; FR-10AB, LLC; FR-11AB, LLC; FR-12AB, LLC; FR-AIRLINE, LLC; FR-CCW, LLC; FR-CW, LLC; FR-DORSET, LLC; F.R. MIDRAIL, LLC; FR-SSTAX, LLC; FR-NAUVOO, LLC; FR-EAGLEWOOD, LLC; NC WHITNEY, LTD; FR-CASTLE, LLC; FR-CW LOTS, LLC; CENTRAL PROPERTY MANAGEMENT, LLC; AND NKW, LLC, Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

          Ted Stewart, United States District Judge.

         District Judge Ted Stewart This matter is before the Court on Defendants' Motion to Dismiss. For the reasons discussed below, the Court will dismiss Plaintiff's first two causes of action as impermissible claim-splitting and will dismiss the remaining causes of action for lack of standing, thereby granting Defendants' Motion to Dismiss.

         I. BACKGROUND

         Plaintiff Bank of the West (“BOTW”) is a national banking association located in California. BNB Development, LLC (“BNB”) executed several promissory notes that were secured by deeds of trust in favor of BOTW, encumbering real property located in Wasatch County, Utah. BNB's obligations under these loan agreements were guaranteed by Newell Whitney, Willie J. Whitney, and Brent D. Butcher. BNB eventually defaulted on the amounts owed, and on September 30, 2010, BOTW filed an action to collect in the Third Judicial District Court of the State of Utah.[1] Two years later, on November 26, 2012, the court entered a final judgment of $2, 050, 000 in favor of BOTW and against BNB, Newell Whitney, and Willie Whitney.

         On August 31, 2015, BOTW filed its first federal lawsuit (“BOTW I”) in the United States District Court for the District of Utah to collect on its judgment.[2] BOTW named Newell Whitney, Connie Whitney, and twenty-seven entities as defendants and asserted five claims against the defendants: (1) Imposition of Resulting Trust; (2) Reverse Piercing of the Corporate Veil; (3) & (4) Fraudulent Transfer; and (5) Declaratory Judgment Re: Debt from Whitney Trust to Whitney Limited Partnership. BOTW alleged that Newell Whitney had paid nothing toward the judgment and Newell Whitney claimed to own no assets that could be applied to payment of the judgment.

         In November 2016, six months after the deadline for amending the pleadings and adding parties, BOTW moved to amend its complaint, seeking, among other things, to bring additional fraudulent transfer claims and add new defendants. In a Memorandum Decision and Order Denying Motion to Amend, the BOTW I court found:

Plaintiff should have been aware of the facts that [gave] rise to its proposed Amended Complaint months before it sought leave to amend. Plaintiff has failed to show such neglect was excusable and has failed to offer an adequate explanation for the delay. Indeed the depositions that prompted review of the documents were postponed twice at Plaintiffs request.[3]

         The BOTW I court denied the motion, concluding that it would be prejudicial to the defendants to allow leave to amend so late in the case.

         BOTW then contacted the BOTW I defendants and asked if they would stipulate to an amendment despite the ruling against BOTW. If not, BOTW said it would file a separate lawsuit asserting the new claims. Regarding the proposed amended complaint, BOTW said, “Obviously, the claims set forth in the attached Complaint are factually interrelated with the facts at issue in the pending litigation. For that reason, we don't think it makes sense-for any of the parties-to litigate these claims in separate lawsuits.”[4] The defendants refused to allow the amendment, so “BOTW then filed its Complaint in this action, asserting essentially the same claims it had proposed to bring into the First Action.”[5] Defendants now move to dismiss the Complaint.

         II. STANDARD OF REVIEW

         “It is well-settled that a plaintiff may ‘not use the tactic of filing two substantially identical complaints to expand the procedural rights he would have otherwise enjoyed.'”[6] “In particular, the court must ensure that the plaintiff does not use the incorrect procedure of filing duplicative complaints for the purpose of circumventing the rules pertaining to the amendment of complaints.”[7] However, “from the standpoint of policy and logic, the fact that a plaintiff's motion to amend was denied on the ground of disruptiveness should have no bearing on the question whether plaintiff should be permitted to assert such claim in a separate lawsuit.”[8] Instead, the question before the Court is whether the party bringing claims in a separate suit is engaging in impermissible claim-splitting.[9]

The rule against claim-splitting requires a plaintiff to assert all of its causes of action arising from a common set of facts in one lawsuit. By spreading claims around in multiple lawsuits in other courts or before other judges, parties waste “scarce judicial resources” and undermine “the efficient and comprehensive disposition of cases.”[10]

         Therefore, “related claims must be brought in a single cause of action, ” or they may be dismissed.[11]

         The doctrine of claim-splitting is analyzed “as an aspect of res judicata, ”[12] or claim preclusion. Since the Court is determining the preclusive effect of a case before the federal court, the federal law of claim preclusion applies.[13] In the Tenth Circuit, “claim preclusion requires: (1) a judgment on the merits in the earlier action; (2) identity of the parties or their privies in both suits; and (3) identity of the cause of action in both suits.”[14] “Put another way, the doctrine of claim preclusion prevents ‘the parties or their privies from relitigating issues that were or could have been raised in' an earlier action.”[15] Additionally, “the test for claim splitting is not whether there is finality of judgment, but whether the first suit, assuming it were final, would preclude the second suit.”[16] Therefore, because the Court assumes that BOTW I resulted in a final judgment for the purposes of its claim-splitting analysis, it need only consider the final two prongs of the claim preclusion test.

         III. DISCUSSION

         “With respect to BOTW's eighth, ninth, tenth, eleventh and twelfth claims for relief, filed in this action, BOTW has considered the advantages of prosecuting these claims, and has decided to voluntarily dismiss them. Thus, these claims are no longer at issue.”[17] Thus, the Court will only discuss claims one through seven.

         A. BOTW'S FIRST AND SECOND CLAIMS FOR RELIEF

         1. Identity of the Causes of Action

         The Tenth Circuit “adopted the transactional approach of the Restatement (Second) of Judgments to determine what constitutes a ‘cause of action' for res judicata purposes.”[18] This approach provides, “[a] final judgment extinguishes 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.”[19] In considering each cause of action, “[w]hat constitutes a ‘transaction' or a ‘series' is to be determined pragmatically considering whether the facts are related in time, space, origin, or motivation, and whether they form a convenient trial unit.”[20]

         In both BOTW I and this case, the first and second claims for relief are almost identical. The claims in both cases seek to impose a resulting trust on the assets and/or to reverse pierce the corporate veils of Defendants Fox Run, the Fox Run Subsidiaries, the Whitney Trust, the Whitney Limited Partnership, the Whitney Limited Partnership Subsidiaries, and Central Property Management (hereafter collectively referred to as the “Whitney Entities”). The only differences are in the wording of the headings and the recognition of a managerial role held by Kyle Whitney.[21] BOTW does not deny that these causes of action are the same as those in BOTW I, but argues that they were necessary to re-allege because, if BOTW is to recover any relief from the Whitney Entities, BOTW must demonstrate that the property held by the Whitney Entities is actually the property of Newell Whitney.

         While BOTW's alter ego theory may be necessary for recovery, this does not change the fact that the first two causes of action in both cases are based on the same alleged facts arising out of the same time, space, origin, and motivation, and therefore, arise out of the same transactions. Further, the causes of action in the two cases not only form a convenient trial unit, but splitting them would result in multiple judges or juries considering the same issues, weighing the same facts, and analyzing the same laws in a duplicative act that would waste scarce judicial resources and open the rulings to inefficient and potentially inconsistent dispositions. This presents multiple problems and is a major reason why claim-splitting is most often not allowed. BOTW recognized this when it stated, “Obviously, the claims set forth in the attached Complaint are factually interrelated with the facts at issue in the pending litigation. For that reason, we don't think it makes sense-for any of the parties-to litigate these claims in separate lawsuits.”[22]

         For these reasons, the Court finds that Plaintiff's first two claims for relief in this case stem from the same transaction as the first two claims in BOTW I and, therefore, satisfy the identity of the cause of action requirement for claim preclusion.

         2. Identity of the Parties or Their Privies

         Most of the Defendants BOTW seeks to impose its alter ego theory on in this case are the same Defendants BOTW sought to impose its alter ego theory on in BOTW I. In regards to those Defendants, it is not necessary to establish privity since the “identity of parties” requirement is established by the fact that they are the same Defendants named in both cases. It is also unnecessary for the Court to decide whether Kyle Whitney and Tania Clark, Newell's children and two of the defendants not named in BOTW I, are in privity to any defendants from BOTW I with respect to the first two claims since these first two causes of action do not involve them, except to state their positions. However, the Court must consider whether NC Whitney Alpine, LLC, and NC ...


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