Asset Resolution, LLC. et al v. Schoonover, No. 2:2009cv01832 - Document 24 (D. Nev. 2009)

Court Description: ORDER Granting 7 Motion to Dismiss. Denying as moot 15 Motion to Remand to State Court. Asset Resolution and Silar are granted 14 days to to amend counterclaims in Case # 2:07-cv-892-RCJ-GWF one final time. Clerk to enter this order in case 2:07-cv-892-RCJ-GWF. Signed by Judge Robert C. Jones on 12/15/09. (Copies have been distributed pursuant to the NEF - AXM)
Download PDF
Asset Resolution, LLC. et al v. Schoonover Doc. 24 1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 7 ASSET RESOLUTION, LLC et al., 8 Plaintiffs, 9 vs. 10 EDWARD SCHOONOVER et al., 11 Defendants. ) ) ) ) ) ) ) ) ) ) 2:09-cv-01832-RCJ-GWF ORDER 12 13 This case arises out of Plaintiffs’ state law action asserting claims against more than two 14 thousand defendants, sixty-eight of which are parties in another case pending before the Court, 3685 15 San Fernando Lenders, LLC et al. v. Compass USA SPE, LLC et al., No. 2:07-cv-00892-RCJ-GWF 16 (“Compass I”). Plaintiffs in the present case (“Compass II”) are defendants in Compass I. Pending 17 before the Court is Defendants’ Motion to Dismiss or, in the Alternative, to Stay Removed State 18 Court Complaint (#7).1 Plaintiffs have filed a Response (#14). For the reasons given herein, the 19 Court grants the Motion to Dismiss (#7). 20 I. FACTS AND PROCEDURAL HISTORY 21 Compass I is a complex piece of litigation, but it is necessary to recount its background to 22 understand Compass II. USA Commercial Mortgage Co. (“USA Commercial”) was a loan servicing 23 company that went bankrupt. At an auction pursuant to those bankruptcy proceedings, Compass 24 1 25 All Clerk’s Record numbers indicate citation to the record in the present case, Compass II, unless otherwise noted. Dockets.Justia.com 1 USA SPE, LLC (“Compass”) purchased USA Commercial’s interest in thousands of Loan Servicing 2 Agreements (“LSA”). Those LSAs were contracts between USA Commercial and various financial 3 institutions (“Direct Lenders”) that had lent money for the purchase of commercial real estate. The 4 LSAs gave USA Commercial the right to administer the loans on behalf of the Direct Lenders. Silar 5 Advisors, LP and Silar Special Opportunities Fund, LP (collectively, “Silar”) financed Compass’ 6 purchase of the LSAs, retaining a security interest in the LSAs. Silar later assigned the loan and 7 corresponding security interest in the LSAs to Asset Resolution LLC (“Asset Resolution”), an entity 8 created and owned by Silar for this purpose. Asset Resolution eventually foreclosed on the LSAs. 9 Certain Direct Lenders subsequently formed various companies (“the LLCs”), who sued 10 Compass in this Court to determine their rights and obligations under the LSAs and for various 11 torts.2 Asset Resolution and Silar intervened, and soon thereafter they filed an Amended Answer 12 to the Second Amended Complaint and Asset Resolution, LLC’s Counterclaims. (#912). Those 13 counterclaims, brought against approximately sixty-five Counterdefendants, (see id. at 22–23), were 14 for declaratory judgment, breach of contract, breach of the covenant of good faith and fair dealing, 15 permanent injunction, and quantum meruit, (id. at 41–45). On August 13, 2009, the Court gave 16 Asset Resolution fifteen days to amend its counterclaims to include “specific allegations as to the 17 allegedly wrongful conduct of the JV Direct Lenders.” (Compass I, #1384 at 2:12–13). Eighteen 18 days later, Asset Resolution and Silar filed their Second Amended Answer and Counterclaim to 19 Second Amended Complaint (Compass I, #1447). That amendment added no new counterclaims. 20 In the meantime, on August 28, 2009, Asset Resolution and Silar had filed Compass II in the 21 District Court of Clark County. (#1-3). Compass II arises out of the same nucleus of operative facts 22 and the same series of transactions as Compass I, such that the tests for supplemental jurisdiction 23 2 24 25 The Third Amended Complaint asserts claims against Compass, Silar, Asset Resolution, David Blatt, and Boris Piskun for declaratory relief, breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, fraud, conversion, civil conspiracy, and constructive trust. (Compass I, #1360-2). Page 2 of 8 1 and compulsory counterclaims are unarguably both satisfied. The causes of action brought in 2 Compass II are for declaratory judgment, breach of contract, breach of the covenant of good faith 3 and fair dealing, civil conspiracy, “Concert of Action,” conversion, intentional interference with 4 contractual relationships, and “Alter Ego Liability.” (Id.). 5 Defendant Edward Schoonover removed Compass II to this Court based on 28 U.S.C. 6 § 1334(b). Defendants have now moved to dismiss or stay Compass II, arguing that the Court does 7 not have subject matter jurisdiction over the Compass II claims because they are duplicative of the 8 counterclaims in Compass I. Plaintiffs respond that the claims are not duplicative, and in any case, 9 if there is no subject matter jurisdiction, the Court must remand. Accordingly, Plaintiffs have also 10 filed a Motion to Remand (#15). 11 Further complicating matters, on October 14, 2009, Asset Resolution and Silar filed a Notice 12 of Commencement of Chapter 11 Bankruptcy Cases (Compass I, #1547), indicating that Asset 13 Resolution, but not Silar itself, had filed for Chapter 11 bankruptcy in the United States Bankruptcy 14 Court for the Southern District of New York. On November 24, after oral argument on the present 15 Motion (#7), the Bankruptcy Court for the Southern District of New York granted Asset 16 Resolution’s motion for transfer of venue, transferring the bankruptcy action to the Bankruptcy 17 Court for the District of Nevada. (#22-1 at 13). 18 II. LEGAL STANDARDS 19 A. 20 Federal courts are courts of limited jurisdiction, possessing only those powers granted by the 21 Constitution and statute. See United States v. Marks, 530 F.3d 799, 810 (9th Cir. 2008) (citing 22 Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). The party asserting federal 23 jurisdiction bears the burden of overcoming the presumption against it. Kokkonen, 511 U.S. at 377. 24 Federal Rule of Civil Procedure 12(b)(1) provides an affirmative defense for lack of subject matter 25 jurisdiction. Fed. R. Civ. P. 12(b)(1). Additionally, a court may raise the question of subject matter Subject Matter Jurisdiction Page 3 of 8 1 jurisdiction sua sponte at any time during an action. United States v. Moreno-Morillo, 334 F.3d 819, 2 830 (9th Cir. 2003). Regardless of who raises the issue, “when a federal court concludes that it lacks 3 subject-matter jurisdiction, the court must dismiss the complaint in its entirety.” Arbaugh v. Y&H 4 Corp., 546 U.S. 500, 514 (2006) (citing 16 J. Moore et al., Moore’s Federal Practice § 106.66[1], 5 pp. 106-88 to 106-89 (3d ed. 2005)). 6 The most common sources of federal jurisdiction in the district courts are the statutes 7 creating federal question jurisdiction and diversity jurisdiction. See 28 U.S.C. §§ 1331–32. But 8 there are other statutes creating federal jurisdiction, as well. For example, “the district courts shall 9 have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising 10 11 12 13 in or related to cases under title 11.” 28 U.S.C. § 1334(b). Proceedings “related to” the bankruptcy include (1) causes of action owned by the debtor which become property of the estate pursuant to 11 U.S.C. § 541, and (2) suits between third parties which have an effect on the bankruptcy estate . . . . The first type of “related to” proceeding involves a claim like the state-law breach of contract action at issue in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). 14 15 Vacation Village, Inc. v. Clark County, Nev., 497 F.3d 902, 911 (9th Cir. 2007) (quoting Celotex 16 Corp. v. Edwards, 514 U.S. 300, 307 (1995)). Section 541 makes part of the estate, inter alia, “all 17 legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. 18 § 541(a)(1). “[P]ending causes of action qualify as ‘property of the estate’ in bankruptcy under 11 19 U.S.C. § 541(a)(1)—including causes of action sounding in tort, such as personal injury, for which 20 the ultimate amount of recovery is uncertain.” Ileto v. Glock, Inc., 565 F.3d 1126, 1148 n.1 (9th Cir. 21 2009). Furthermore, “‘[T]he district court in which the bankruptcy case is commenced obtains 22 exclusive in rem jurisdiction over all of the property in the estate.’ A chose in action is property of 23 the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(1). For this reason, only bankruptcy trustees, 24 debtors-in-possession, or bankruptcy court authorized entities have standing to sue on behalf of the 25 estate.” McGuire v. United States, 550 F.3d 903, 914 (9th Cir. 2008) (citations omitted). Page 4 of 8 1 In removed cases, “[i]f at any time before final judgment, it appears that the district court 2 lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). A district 3 court’s dismissal for lack of subject matter jurisdiction is reviewed de novo. Ass’n of Am. Med. 4 Colls. v. United States, 217 F.3d 770, 778 (9th Cir. 2000). 5 B. 6 In the interest of judicial economy, the Federal Rules of Civil Procedure provide: “A 7 pleading must state as a counterclaim any claim that—at the time of its service—the pleader has 8 against an opposing party if the claim: (A) arises out of the transaction or occurrence that is the 9 subject matter of the opposing party’s claim; and (B) does not require adding another party over 10 whom the court cannot acquire jurisdiction.” Fed. R. Civ. P. 13(a)(1)(A)–(B). Federal courts have 11 supplemental jurisdiction over compulsory counterclaims without any independent basis for 12 jurisdiction. See, e.g., Marine Transp. Servs. Sea-Barge Group v. Python High Performance Marine 13 Corp., 16 F.3d 1133, 1139 (11th Cir. 1994); see also Shay S. Scott, Supplemental Jurisdiction Under 14 28 U.S.C. § 1367, 72 Or. L. Rev. 695, 701 (1993) (citing Fed. R. Civ. P. 13(a); Koufakis v. Carvel, 15 425 F.2d 892, 899 (2d Cir. 1970)). 16 III. Compulsory Counterclaims ANALYSIS 17 Defendants ask the Court to dismiss or stay Compass II for lack of subject matter jurisdiction 18 because the case is duplicative of Compass I. Asset Resolutions and Silar respond that there are 19 additional state law claims and defendants in Compass II, making Compass II at most only partially 20 duplicative of Compass I. They also argue that if the Court determines there is no jurisdiction, it 21 must remand. Defendants are correct that the Court should dismiss Compass II, but it is not because 22 the Court lacks jurisdiction. The Court has jurisdiction over Plaintiffs’ claims in Compass II 23 pursuant to both 28 U.S.C. § 1334(b) and § 1367. Silar is not in bankruptcy, and Asset Resolution’s 24 own claims are not stayed. Only claims against Asset Resolution’s assets are stayed. Moreover, the 25 bankruptcy has now been transferred to this District, giving this Court exclusive in rem jurisdiction Page 5 of 8 1 over Asset Resolution’s property. The Court will dismiss Compass II not because it lacks 2 jurisdiction, but because the claims therein are compulsory counterclaims in another case pending 3 in this Court: Compass I. 4 Wright, Miller, and Kane note that the appropriate course of action under the present fact 5 pattern “remains unsettled,” but they offer a suggestion based on past federal practice: “Ideally, 6 once a court becomes aware that an action on its docket involves a claim that should be a 7 compulsory counterclaim in another pending federal suit, it will stay its own proceedings or will 8 dismiss the claim with leave to plead it in the prior action.” 6 Charles Alan Wright, Arthur R. Miller 9 & Mary Kay Kane, Federal Practice and Procedure § 1418 (2d ed. 1990) (citations omitted).3 When 10 claims are brought in state court that are compulsory counterclaims in a pending federal action, the 11 federal court cannot enjoin the state proceedings unless necessary to protect its jurisdiction over a 12 res; both cases should proceed, and the first to conclude will preclude the claims or counterclaims 13 in the other action. Id. Such is not the case here, because Compass II has been removed, and the 14 Court has jurisdiction over it pursuant to § 1334(b). The claims in Compass II are compulsory 15 counterclaims in Compass I, because they all “arise[] out of the transaction or occurrence that is the 16 subject matter of the opposing party’s claim,” i.e., the LSAs and the transactions surrounding them. 17 Fed. R. Civ. P. 13(a)(1)(A). 18 Although Silar argues at length that the claims in Compass II are not duplicative of those in 19 Compass I because Compass II includes additional parties and additional causes of action, (#14 at 20 5:2–3 (citing Adams v. Cal. Dep’t of Health Servs., 487 F.3d 684, 689 (9th Cir. 2007)), this misses 21 the point. The relevant question is whether the claims in Compass II are compulsory counterclaims 22 23 24 3 25 This is the case here, and Defendants ask the Court in the present Motion (#7) to choose between the two courses of action that Wright, Miller, and Kane suggest. Page 6 of 8 1 in Compass I.4 Claims in a second action need not be duplicative of those in a first action in order 2 to be compulsory counterclaims in the first action. 3 counterclaim rule are related tools designed to increase judicial efficiency, but they are not the same 4 thing. Adams was a claim-splitting case involving a plaintiff who filed a second action after a 5 district court had denied her motion to amend her complaint in the first action. See id. at 687. The 6 Adams court did not even mention the compulsory counterclaim rule, which is a separate tool to 7 vindicate the aims of judicial efficiency apart from the anti-claim-splitting rule. Claim splitting is 8 a sufficient, but not a necessary, reason for a district court to dismiss a second action in favor of a 9 related first one. Claim preclusion and the compulsory 10 Here, the Court granted Silar the right to amend its counterclaims in Compass I. The 11 problem here is not claim splitting, but the compulsory counterclaim rule. Even assuming, 12 arguendo, that the Compass II claims are not duplicative of the Compass I counterclaims, this does 13 not affect the propriety of dismissal of Compass II in favor of requiring Silar to plead those claims 14 as counterclaims in Compass I. If Defendants asked this Court to enjoin Compass II while it was 15 pending in state court, the Court would have to address additional issues, but as it stands, Compass 16 II has been properly removed, and it would be totally superfluous and wasteful for the Court to hear 17 a separate case involving only claims that are compulsory counterclaims in another case already 18 pending in front of it. This Court will decide all of the claims, whether maintained in the same case 19 or in two separate cases. There is no legitimate reason to maintain separate cases. 20 CONCLUSION 21 IT IS HEREBY ORDERED that the Motion to Dismiss (#7) is GRANTED and the Motion 22 to Remand (#15) is DENIED as moot. Asset Resolution and Silar are granted fourteen (14) days 23 24 25 4 Silar does not argue that the claims in Compass II are not compulsory counterclaims in Compass I, because it could not plausibly argue this. Rather, Silar attempts to draw the Court’s attention to the inapposite issue of claim-splitting. Page 7 of 8 1 from the date of this order to amend their counterclaims in Case No. 2:07-cv-00892-RCJ-GWF one 2 final time. The Clerk will enter this order into Docket No. 2:07-cv-00892-RCJ-GWF, as well. 3 DATED: December 15, 2009 4 5 6 ______________________________________ Robert C. Jones United States District Judge 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 8 of 8