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Bank of West v. Whitney

United States District Court, D. Utah

January 5, 2018

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 DENYING PLAINTIFF'S RULE 59(e) MOTIONS TO AMEND AND DENYING DEFENDANTS' REQUEST FOR ATTORNEYS' FEES

          TED STEWART, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiff Bank of the West's (“BOTW”) Motion to Amend the Court's Dismissal of Claims 3, 5, 6 & 7 and to Stay the Case Pending a Decision in No. 2:15-cv-622 (Motion I) and BOTW's Motion to Amend the Court's Ruling on Standing in Its Memorandum Decision and Order (Motion II). For the reasons discussed below, the Court denies both Motions. In response to Motion II, Defendants request attorneys' fees. The Court denies assessment of the requested fees.

         I. BACKGROUND

         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 for relief. BOTW alleged that Newell Whitney had paid nothing toward the judgment and Newell Whitney claimed to own no assets that could be applied as payment.

         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 filed its Complaint in this action, asserting essentially the same claims from its proposed amended complaint in BOTW I. Defendants then filed a Motion to Dismiss and the Court dismissed Plaintiff's first and second claims as impermissible claim-splitting and the remaining claims for lack of standing. The Court found:

In order for the injury in this case to be fairly traceable to Defendants under claims three through seven, BOTW depends on its allegations of alter ego and reverse veil piercing in claims one and two. However, with the dismissal of BOTW's first two claims, BOTW is left without a fairly traceable causal connection between the injury of Newell Whitney's failure to pay and the remaining defendants. Without this connection, BOTW is unable to impose liability on the remaining defendants through the allegations in claims three through seven. Without the ability to impose liability, BOTW cannot obtain the relief sought.[4]

         BOTW has now filed Motions I and II pursuant to Federal Rule of Civil Procedure 59(e).

         II. STANDARD OF REVIEW

         The purpose of a motion to alter or amend a judgment under Rule 59(e) “is to correct manifest errors of law or to present newly discovered evidence.”[5] “Grounds warranting a motion to reconsider include (1) an intervening change in the controlling law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice.”[6]

         “Thus, a motion for reconsideration is appropriate where the court has misapprehended the facts, a party's position, or the controlling law.”[7] “It is not appropriate to revisit issues already addressed or advance arguments that could have been raised in prior briefing.”[8]

         III. DISCUSSION

         In Motion I, BOTW brought to the Court's attention for the first time the fact that the statute of limitations on claim 3 and claims 5-7 from the Complaint have or will soon expire.[9]BOTW argues that dismissing those claims “effectively barred [BOTW] from ever seeking an adjudication on the merits of its Claims, ”[10] and will result in manifest injustice. BOTW requests that the Court reinstate claims 3, 5, 6, and 7 and stay the matter until the resulting trust and alter ego claims in BOTW I are decided. Defendants responded that, “Without standing, this Court has no jurisdiction over this case and . . . retains no discretion to stay a case without jurisdiction.”[11]

         BOTW then filed Motion II, stating that at the time it filed Motion I, “BOTW did not appreciate the significance of the Court's dismissal based on standing: that it deprives the Court of jurisdiction over Claims 3-7 . . . thus disempowering the Court to enter a stay, as sought in BOTW's motion.”[12] To address this issue BOTW now argues that the Court should reverse its ruling on standing.

         Before addressing BOTW's arguments regarding standing, the Court takes issue with BOTW's use of Motions I and II to advance arguments which were not, but should have been made in the briefing of Defendants' Motion to Dismiss. In their Motion to Dismiss, Defendants clearly raised the issue of standing.[13] BOTW failed to respond to that argument and indeed required the filing of a second motion to amend to finally address the issue. It is improper for BOTW to do so now as “[i]t is not appropriate [in a motion to reconsider] . . . to advance arguments that could have been raised in prior briefing.”[14]

         BOTW argues that it “squarely addressed defendants' argument that dismissal of Claims 1 and 2 resulted in a lack of standing to pursue Claims 3-7, by arguing, to the contrary, that proof of alter ego or resulting trust is necessary to establish the required element that the transferred property is Whitney's property.”[15] This statement is not contrary to Defendants' statements since the dismissal of Claims 1 and 2 as impermissible claim-splitting also dismisses the issues of alter ego and resulting trust altogether.

         Therefore, BOTW's failure to argue the issue of standing in prior briefing and its dilatory behavior that resulted in the advancement of these new arguments in Motions I and II are sufficient grounds to deny the Motions without further discussion. However, the Court will consider whether there is a need to correct a clear error in its ruling on standing.

         A. Standing

         To establish standing, a plaintiff must prove (1) an injury that is (2) fairly traceable to the defendant's allegedly unlawful conduct and that is (3) likely to be redressed by the requested relief.[16] Where a party fails to carry its burden of establishing standing, the court must dismiss for lack of jurisdiction.[17]

         As stated in the dismissal order, “for the injury in this case to be fairly traceable to Defendants under claims three through seven, BOTW depends on its allegations of alter ego and reverse veil piercing in claims one and two.”[18] “The element of traceability requires the plaintiff to show that the defendant is responsible for the injury, rather than some other party not before the court.”[19] However, BOTW would have the Court accept its allegations of resulting trust and alter ego as true under the usual Rule 12(b)(6) standard, [20] despite the fact that the Court dismissed the two claims as impermissible claim-splitting.

         BOTW looks to Southern Utah Wilderness Alliance v. Palma for support. That case held, “When evaluating a plaintiff's standing at the stage of a motion to dismiss on the pleadings, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party.”[21] BOTW argues, “In short, demonstration that the property transferred and encumbered is Newell Whitney's property is an element of its claims; the fact that BOTW has not proved this yet does not mean that BOTW lacks standing to pursue Claims 3-7.”[22] BOTW asks, if BOTW is required to prove resulting trust and alter ego at the pleadings stage, ‚Äúthen in what other types of ...


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