Arma Yates, LLC v. Robertson (In re Robertson)
Arma Yates, LLC v. Robertson (In re Robertson)
Opinion of the Court
The parties have a long, acrimonious history involving litigation in the Illinois federal court. In that forum, Plaintiffs obtained a significant judgment against the Debtors and engaged in extensive efforts to collect the judgment. These actions ultimately resulted in the Debtors filing for bankruptcy relief under Chapter 7. However, Plaintiffs have continued to pursue the Debtors by filing a complaint under
I. FACTS
1. On or about December 16, 2016, the United States District Court for the Northern District of Illinois (the "Illinois Federal Court") entered a judgment (the "Judgment") in favor of Arma Yates
2. After obtaining the Judgment, Arma Yates initiated collection actions in the Illinois Federal Court that required the Debtors to disclose and turnover non-exempt assets.
3. The Debtors filed a Chapter 7 case in this District on August 17, 2017 (Case No. 17-27193), which was one day before a show-cause hearing scheduled before the Illinois Federal Court. The Debtors' bankruptcy case was dismissed on September 20, 2017, based on their failure to pay the court filing fee.
4. After the dismissal of the Debtors' first bankruptcy case, the Illinois Federal Court rescheduled the show-cause hearing for September 28, 2017.
*8495. September 27, 2017, the Debtors filed a second Chapter 7 case, and George Hoffman was appointed as the Chapter 7 trustee.
6. On March 22, 2018, Arma Yates filed a proof of claim for $46,975,528.54 based on the Judgment (the "Claim").
7. On May 3, 2018, Arma Yates filed the above-captioned adversary proceeding under
8. On June 14, 2018, the Debtors answered the Complaint and asserted counterclaims against Arma Yates (the "Counterclaims").
9. The Counterclaims asserts four causes of action:
a. Civil conspiracy involving fraudulent and wrongful conduct by Arma Yates and others in obtaining and collecting the Judgment before the Illinois Federal Court.
b. Wrongful seizure of the Debtors' assets by Arma Yates in connection with its actions to collect on the Judgment.
c. Damages to property returned to the Debtors after its seizure by Arma Yates in connection with its actions to collect on the Judgment.
d. Malicious prosecution by Arma Yates in the Illinois Federal Action.
10. Arma Yates filed this motion to dismiss the Debtors' Counterclaims.
11. To date, the Chapter 7 trustee has not abandoned the Counterclaims under
II. RULING
1. The Debtors' Counterclaims Must be Dismissed Because the Court Lacks Jurisdiction to Hear Them.
The Debtors' Counterclaims assert causes of action for civil conspiracy, conversion, property damage, and malicious prosecution. These are common law tort claims
In Stern v. Marshall ,
On ultimate appeal, the Supreme Court ruled that while the bankruptcy court had statutory authority under
This case bears the same jurisdictional infirmity. The Debtors' Counterclaims are private right tort claims that arise out of the alleged pre-petition conduct of Arma Yates in obtaining and collecting the Judgment. The Judgment is the basis for the Arma Yates's Claim against the Debtors' bankruptcy estate. However, because the Claim is based on a final judgment, issue and claim preclusion prevent a challenge to its allowance. Therefore, a decision on the Counterclaims does not require a concurrent resolution as to the allowance of the Arma Yates's Claim.
Consequently, this Article I Court does not have jurisdiction to hear the Debtors' private right, common law tort claims that "are not necessarily resolvable in the claims allowance process."
2. The Debtors' Counterclaims Must be Dismissed Because the Debtors do not Have Standing.
Even if the Court had jurisdiction to rule on the Counterclaims, the Debtors do not have standing to pursue them. Under
As such, the Chapter 7 trustee is the only party with standing to pursue the Counterclaims.
3. The Debtors' Counterclaims Must be Dismissed Because They are Barred by the Doctrines of Collateral Estoppel and Res Judicata
Even if the Court had jurisdiction and the Debtors had standing, the Counterclaims must still be dismissed under the doctrines of collateral estoppel and res judicata. The Court has reviewed the allegations in support of the Debtors' Counterclaims. They all directly arise from the actions of Arma Yates in obtaining and collecting on the Judgment in the Illinois Federal Court. The Counterclaims assert that Arma Yates made false statements in the Illinois Federal Action, that Arma Yates engaged in malicious prosecution in the Illinois Federal Action, and that Arma Yates engaged in wrongful and fraudulent conduct in collecting on the Judgment. For example, the Counterclaims allege:
The Counter Defendants joined together to jointly engage in a civil conspiracy to obtain a false and bad faith judgment against the [Debtors] ....19
The Counter Defendants joined together, with their lawyers in Utah, Texas and Illinois, in a civil conspiracy the purpose of which was and is (a) to obtain a wrongful and fraudulent judgment against the [Debtors] for allegedly due rents, (b) to preserve said wrongful Judgment, (c) to wrongfully and illegally seize assets from the [Debtors] to pay toward the wrongful judgment ....20
To the extent the Counterclaims raise issues that were previously decided by the Illinois Federal Court, they are barred by collateral estoppel. Federal law applies when considering the collateral estoppel effect of a prior, federal court judgment.
(1) the issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party, or in privity with a party, to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.23
*852In this case, the parties are identical, the Debtors actively participated in the litigation and had a full opportunity to advance their defenses, and the litigation resulted in a final judgment on the merits. Further, the Debtors' Counterclaims arise from the same set of transactional facts regarding the Judgment and its collection. While the Court is not aware of every defense or argument the Debtors made in the Illinois Federal Action, cannot be disputed that they had the opportunity to raise the same claims asserted in the Counterclaims. For these reasons, the Debtors' Counterclaims are barred by collateral estoppel.
Even if the Debtors did not raise these issues in the Illinois Federal Action, res judicata bars the Debtors from asserting any causes of action that could have been asserted in the Illinois Federal Action:
Under res judicata, or claim preclusion, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in the prior action. Res judicata is intended to relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, prevent inconsistent decisions, and encourage reliance on adjudication. A claim is barred by res judicata if three elements exist: (1) a final judgment on the merits in the prior suit; (2) the prior suit involved identical claims as the claims in the present suit; and (3) the prior suit involved the same parties or their privies.24
The Illinois Federal Action involved the same parties and resulted in a final judgment. The Debtors' Counterclaims arise from the same transactional facts that were before the Illinois Federal Court. If the Debtors believed Arma Yates engaged in wrongful and fraudulent conduct in obtaining and collecting the Judgment, the Debtors could and should have raised those issues with the Illinois Federal Court.
For these reasons, the Court concludes that both issue and claim preclusion bar the Debtors from raising their pre-petition Counterclaims; therefore, the Court will dismiss the Counterclaims.
4. As Matter of Comity and Judicial Economy, the Court Declines to Consider the Debtors' Counterclaims.
Finally, the Debtors' Counterclaims are more appropriately brought before the Illinois Federal Court as the court having original jurisdiction over the parties and their disputes. As noted by the Tenth Circuit, "the first federal district court which obtains jurisdiction of parties and issues should have priority and the second court should decline consideration of the action until the proceedings before the first court are terminated."
The Illinois Federal Court has a long history with the parties, giving it first-hand knowledge of their claims, defenses, and conduct regarding the Judgment.
*853Therefore, as a matter of comity and judicial economy, this Court will not consider the Debtors' Counterclaims.
III. CONCLUSION
Because the Debtors' Counterclaims assert private right, common law tort claims of civil conspiracy, conversion, property damage, and malicious prosecution, the Bankruptcy Court lacks constitutional authority to enter a final order or judgment. Consequently, the Bankruptcy Court must dismiss the Debtors' Counterclaims.
Even if the Bankruptcy Court had jurisdiction, the Counterclaims would still be dismissed because (1) the Debtors lack standing to pursue them; (2) they are barred by the doctrines of collateral estoppel and res judicata; and/or (3) under the first to file rule, the Counterclaims should be decided by the Illinois Federal Court. The Court will enter an Order consistent with the rulings set forth in this Memorandum Decision.
Plaintiffs Arma Yates, LLC; Florence Heights Associates, LLC; Hutchinson Kansas, LLC; Kansas Five Property, L.L.C.; Minnesota Associates, LLC; Ogden Associates, LLC; Peabody Associates Two, LLC; Sedgwick Properties, LLC; and Wellington Subleasehold, LLC are collectively referred to as "Arma Yates."
Docket No. 11, Exhibit 1 to Plaintiffs' Motion to Dismiss Debtors' Counterclaims. All subsequent references to the docket are in Case No. 18-2059 unless otherwise specified.
Docket No. 7, p. 11.
Case No. 17-27193, Docket No. 14.
Arma Yates, LLC v. Arma Care Center, LLC , No.
Case No. 17-28451.
Proof of Claim No. 11, Case No. 17-28451.
Docket No. 1.
Docket No. 5.
Docket No. 7.
Newby v. Enron Corp. (In re Enron Corp. Secs.) ,
See Loveridge v. Hall (In re Renewable Energy Dev. Corp.) ,
Stern v. Marshall ,
In re Renewable Energy Dev. Corp. ,
Wellness Int'l Network, Ltd. v. Sharif , --- U.S. ----,
Willess v. United States , 560 Fed. App'x. 762, 764 (10th Cir. 2014) ("[T]he relevant date for determining if a legal claim becomes property of the bankruptcy estate is the date of the claim's accrual, not the date the claim is brought.").
Docket No. 5, ¶ 26.
Docket No. 5, ¶ 32.
Murdock v. Ute Indian Tribe of Uintah & Ouray Reservation ,
Park Lake Res. Ltd. Liab. Co. v. U.S. Dep't of Agric. ,
Burrell v. Armijo ,
Satsky v. Paramount Commc'ns, Inc. ,
O'Hare Int'l Bank v. Lambert ,
Buzas Baseball, Inc. v. Bd. of Regents of Univ. Sys. of Ga., No. 98-4098,
Reference
- Full Case Name
- IN RE: Jon & Shuana ROBERTSON, Debtors. Arma Yates, LLC, and Counterclaim v. Jon & Shuana Robertson, and Counterclaim
- Cited By
- 1 case
- Status
- Published