*1 UNITED STATES DISTRICT COURT DISTRICT OF SOUTH DAKOTA CENTRAL DIVISION
BRET HEALY, 3:2I-CV-03004-RAL
Plaintiff,
OPINION AND ORDER GRANTING DEFENDANTS' vs. MOTIONS TO DISMISS ALBERT STEVEN FOX, BRYCE HEALY,
MARY ANN OSBORNE,
Defendants.
/ This case arises from a bitter dispute over ownership and control of a family ranch. On February 22, 2021, plaintiff Bret Healy ("Bret") filed this action against his mother Mary Ann Osbome ("Osbome"), brother Bryce Healy ("Bryce"), the family's longtime attomey Albert Steven Fox ("Fox") (collectively "Defendants"), and others' alleging they fraudulently acted to deprive Bret of his interest in valuable real property and induce him into investing $2.7 million into the family ranch. Doc. I. Defendants filed motions to dismiss in groups on March 3, March r- 10, and March 15, 2021. Docs. II, 24, 30, 32. After the motions to dismiss were filed, Bret on March 24, 2021, without obtaining leave of the Court,^ filed an Amended Complaint dropping his ' Bret's original complaint named as defendants Albert Steven Fox; David J. Larson; Larson Law
PC; Mary Alice Larson; Bryce Healy; Brule County Abstract Company, Inc.; Larson, Sundall, Larson, Schaub and Fox PC; and Mary Ann Osbome. Doc. 1. The Amended Complaint named only Mary Ann Osbom; Bryce Healy and Albert Steven Fox as defendants and dropped claims against Mary Alice Larson; Larson Law PC; Larson, Sundall, Larson, Schaub and Fox PC; Bnile j County Abstract Company, Inc. and David J. Larson. Doc. 35.
^ The District of South Dakota's Local Rules state that "any party moving to amend a pleading must attach a copy of the proposed amended pleading to its motion to amend with the proposed
I *2 prior claims and asserting against the Defendants Bryce, Osbome and Fox a claim under 18 U.S.C. § 1964(e) of the Racketeer Influenced and Corrupt Organizations ("RICO") Act. Docs. 1, 35. Bret's Amended Complaint claims that the named Defendants conspired to defraud him by intentionally failing to provide proper consideration when forming the corporate entity, Healy Ranch, Inc. ("HRI"), which the parties used to manage their family ranch and in which he invested over $2 million. Doc. 35. Defendants Bryce, Osbome and Fox responded with renewed motions to dismiss. Docs. 36, 38, 40. Bret opposed the motions to dismiss. Doc. 42, and the Defendants replied. Docs. 43,44,45. For the reasons explained below, this Court grants Defendants' motions to dismiss for failure to state a claim.
I. Facts Not Subject to Dispute
Bret's Amended Complaint alleges that on August 8,2017, he received HRI tax documents during discovery in a lawsuit against the Defendants in state court^ revealing that HRI shares issued in 1994 to Osbome, which were subsequently transferred to Bret in 2000, were void because she failed to provide proper consideration when she established the corporation. Doc. 35 at 2-4, changes highlighted or underlined so that they may be easily identified. If the court grants the motion, the moving party must file a clean original of the amended pleading within 7 days." D.S.D.
Civ. LR 15.1. Although Bret has not complied with the local mles for filing an amended complaint, this Court opts to consider the new allegations in the Amended Complaint, Doc. 35.
See Danielson v. Huether.
^ See Healv v. Osbome. No. 07CIV. 17-23,
Osbome has filed a Motion for Judicial Notice, Doc. 14, seeking for this Court to take judicial
notice of certain pleadings in the state court action including the Verified Complaint, Separate
Answer of Osbome and Counterclaim, Memorandum Deeision, Summary Judgment, Findings of
Faet and Conclusions of Law Awarding Attomey Fees, Judgment, and Supreme Court of South
Dakota decision in Healv v. Osbome.
21-26. On August 1, 1994, Osbome signed Articles of Incorporation, drafted by Fox and filed with the South Dakota Secretary of State, authorizing HRI to issue 1,000,000 shares of common stock. Doc. 35 at IfTf 22,75. Article VI of the Articles of Incorporation stated that the "corporation will not commence business imtil consideration of the value of at least Five Thousand Dollars has been received for the issuance of shares." Doc. 35 at ^ 22. The same day, Osbome, through her attomey Fox, caused HRI to issue Osbome 299,348 shares of common stock, constituting all the issued and outstanding shares of the corporation. Doc. 35 at Tf 23.
Bret alleges that because Osbome provided no consideration for the shares, the shares were void then and in subsequent transactions. Doc. 35 at 24-25, 30-31. However, in 1995!, Osbome caused to be conveyed to HRI from a previously established partnership all the land on which the ranch was situated. Doc. 3 5 at Tf 3 3. After that conveyance, HRI held the record title to and thereby owned the ranch and land. Doc. 35 at ^ 33. Bret contends, "[t]he transfer of the land did not and could not represent consideration for the shares of the Corporation because the property interest in I the land never belonged to [Osbome] personally. At the time of formation of HRI, the land
belonged to the [partnership]-not to [Osbome]." Doc. 35 at ^ 34. Therefore, according to Bret, because an asset of a partnership belongs to the partnership and not an individual, the exchange of the partnership's interest in real property for the issuance of HRI stock to Osbome was invalid and thus the shares issued were void. Doc. 35 at Tf| 34-38 (citing SDCL § 48-7A-203) ("Property acquired by a partnership is property of the partnership and not of the partners individually.").
Bret alleges that the fatally flawed corporate entity, HRI, became a RICO "enterprise" as defined by 18 U.S.C. § 1961(4) which the Defendants used to defraud him out of over $2 million over the course of the next seventeen years. Doc. 35 at 1, 85-97. Bret claims that the *4 Defendants conspired together to violate 18 U.S.C. §§ 1341^ ("mail fraud") and 1344^ ("bank fraud"), both considered "racketeering activity" under 18 U.S.C. § 1961(1), and therefore engaged in a "pattem of racketeering activity"^ entitling him to relief under 18 U.S.C. § 1962(c)' and (d).^ Doc. 35 at Tit 82-83, 93-97, 106, 109.
Bret claims that the mail fraud began in 2000 when Osbome sold her interest in HRI to her three sons Bret, Bryce and Barry. Doc. 35 at 5, 39. Each son purchased a one-third interest in HRI. Doc. 35 at ^ 39. From 2000 to 2016, Bryce (in his role as secretary and treasurer) mailed to Bret Form K-1 accounting documents reflecting Bret's one-third ownership in HRI, which Bret claims induced him to invest $2,053,100 of his own funds on improvements to and operation of the ranch, from which he alleges Osbome and Bryce took substantial sums. Doc. 35 at 5-6, 52-60. Bret understood these Form K-1 papers to document his one-third ownership of the
Section 1341 provides, in part: "[wjhoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises ... for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service ... or knowingly causes to be delivered by mail or such carrier according to the direction thereon . . . shall be fined under this title or imprisoned not more than 20 years, or both."
^ Section 1344 provides, in part: "[wjhoever knowingly executes, or attempts to execute, a scheme or artifice- (1) to defraud a fmancia] institution; or (2) to obtain any of the moneys, funds, credits . . . owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be filed not more than $1,000,000 or imprisoned not more than 30 years, or both."
® A "pattem of racketeering activity," as defined by 18 U.S.C. § 1961(5), "requires at least two
acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity[.]"
' Section 1962(c) provides: "[i]t shall be unlawful for any person employed by or associated with
any enterprise engaged in, or the activities of which affect, interstate or i^oreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattem of racketeering activity or collection of unlawful debt."
^ Section 1962(d) provides: "[i]t shall be unlawful for any person to conspire to violate any of the
provisions of subsection (a), (b), or (c) of this section."
outstanding stock of HRI. Doc. 35 at ^ 52. However, according to the Amended Complaint, the shares were void, and thus Bret had no interest in HRI despite investing in its operation. Doc. 35 at 7, 53-57. Bret claims that he never would have invested into the farm's operation if he did not own valid shares in the corporation. Doc. 35 at Tf 58. Bret alleges that Osbome and Bryce paid themselves approximately $400,000 from HRI funds. Doc. 35 at Tf 60. During this time, Bret served as HRI's director and president. Doc. 35 at f 45. According to Bret, this scheme to defraud
/ him using the mail violated 18 U.S.C. § 1341. Doc. 35 at 190.
Bret also alleges that Defendants committed bank fraud in violation of 18 U.S.C. § 1344 when they entered into an agreement to fraudulently use HRI and Bret's investment in the corporation as collateral for bank loans, Doc. 35 atT|^61-63. On three separate occasions in 1999, 2002 and 2008, Defendants listed HRI assets as collateral in loan applications. Doc. 35 at 62- 66. Specifically, regarding the 2008 loan, Bret alleges that Fox not only removed corporate minutes for years 2000 through 2005 from the HRI corporate record book, but also substituted new minutes for 2000 through 2004 and 2006 through 2008.® Doc. 35 at Tf 67. On one occasion, Bret claims that his forged signature was transmitted by Fox as part of one of the loan applications.
Doc. 35 at Tf 68. Bret asserts that these loan transactions involve the Defendants defrauding Bret and the banks by having Bret sign loan documents as president of HRI despite HRI never validly existing as a corporation and thus lacking valid corporate officers. Doc. 35 at ITf 69-72.
Defendants' motions to dismiss. Docs. 36, 38, 40, assert that Bret's claim is barred by the
doctrine of res judicata, specifically claim preclusion based on Bret having litigated and lost related
® Bret made similar allegations in the state court action. ^ Healv.
up) (alleging that Fox, Osbome and Bryce "had created false corporate resolutions, false title information, . . . sixteen forgeries of his signature on corporate minutes, . . . [and that] Fox was responsible for forging his signature on corporate minutes from 2000 to 2008").
claims in state court action. Doc. 37 at 4-9; Doc. 39; Doc. 41 at 7-12; see generally Healv. 934
N.W.2d at 565. In the state court action, the Supreme Court of South Dakota affirmed summary
judgment disposing of Bret's state coifrt complaint naming these same Defendants and "charging
all of the defendants with conversion, fraud, and conspiracy to commit fraud" because Bret's
claims were time-barred by the statute of limitations. Healy,
Bret claimed then in state court as he does now in the Amended Complaint, Doc. 35 at f
s
20, that he owned a one-fourth interest in the partnership. See Healv,
Specifically, the court held Bret had notice of the transfer of interest from the partnership to HRI. Id. at 565. The Supreme Court of South Dakota stated, "[t]he record establishes that Bret [acting as president of HRI] had either actual or constructive notice of [Osbome's] 1995 warranty deed by, at the latest, 1999[.]" Id The court, referring to HRI as the "corporation," continued;
[T]he only reasonable inference we can draw from the undisputed material facts contained in this record is that Bret was keenly aware of the preeminence of the corporation having purchased, along with his two brothers, a one-third interest in the corporation in 2000 by contract for deed. He served for many years as the corporation's president with access to corporate records. He signed seven mortgage agreements on behalf of the corporation. When he individually purchased a parcel of the ranch for his home in 2007, he bought the land from the corporation. .He brought a civil action in the sole name of the corporation against a third party *7 seeking to recover for damage to ranch fencing without naming the partnership as a plaintiff. Although Bret contends his interest in the partnership remained intact, his actions did not reflect this belief. Until shortly before he initiated this action, Bret ignored the partnership following the creation of Healy Ranch, Inc. He did not record the 1986 partnership agreement or the 1989 deed. The partnership did not file a partnership return or pay property taxes after 1995, and Bret represented that his shares of Healy Ranch, Inc. stock were his only asset on an individual financial statement in November 2001. Bret's comment to Barry in a June 2016 e- mail is also telling. In that correspondence, Bret acknowledged: "I owned 25% of the place - mom insisted on % to everyone - so yes I did put all my chips back in for 8%. . . ." Bret has failed to present any evidence that he could not have discovered the 1995 warranty deed within the statutory period by exercising reasonable diligence.
Id. (cleaned up). Defendants also assert Bret has failed to bring his RICO claim within the statute of limitations.^® Doc. 37 at 9-13; Doc. 39; Doc. 41 at 13-16. ^
II. Standard of Review
On a motion to dismiss under Rule 12(b)(6), courts must accept the plaintiffs factual
allegations as true and construe all inferences in the plaintiffs favor, but need not accept the
plaintiffs legal conclusions. Retro Television Network. Inc. v. Luken Commc'ns. LLC. 696 F.3d
766,768-69 (8th Cir. 2012). To survive a motion to dismiss for failure to state a claim, a complaint
must contain "a short and plain statement of the claim showing that the pleader is entitled to
relief[.]" Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are unnecessary, the
plaintiff must plead enough facts to "state a claim to relief that is plausible on its face." Ashcroft
V. Iqbal.
"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ift
In addition to res judicata and statute of limitations. Fox separately argues for dismissal because the Amended Complaint does not allege that Fox received a benefit from the alleged RICO conspiracy. Doc. 41 at 11-12. Because the Amended Complaint is being dismissed on two alternative grounds, this Court need not reach Fox's additional argument.
When determining whether to grant a Rule 12(b)(6) motion, a court generally must ignore
materials outside the pleadings, but it may "consider 'matters incorporated by reference or integral
to the claim, items subject to judicial notice, matters of public record, items appearing in the record
of the case, and exhibits attached to the complaint." Dittmer Props.. L.P. v. FDIC. 708F.3dl011,
1021 (8th Cir. 2013) (quoting Miller v. Redwood Toxicology Lab.. Inc..
Res judicata or rurming of a statute of limitations may justify granting a motion to dismiss.
See Laase v. Cnty. of Isanti.
III. Res Judicata A. South Dakota Law
Defendants contend that Bret's Amended Complaint should be barred by res judicata—
specifically claim preclusion. Doc. 37 at 4-9; Doc. 39; Doc. 41 at 7-12. "The preclusive effect
of a judgment is defined by claim preclusion and issue preclusion, which are collectively referred
to as res judicata." Taylor v. Sturgell.
Ins. Grp. V. Robnik.
[The Supreme] Court on more than one occasion has used the term 'res judicata' in a narrow sense, so as to exclude issue preclusion or collateral estoppel. When using that formulation, 'res judicata' becomes virtually synonymous with 'claim preclusion.' In order to avoid confusion resulting from the two uses of 'res judicata,' this opinion utilizes the term 'claim preclusion' to refer to the preclusive effect of a judgment in foreclosing relitigation of matters that should have been raised in an earlier suit." (cleaned up and citation omitted)).
attending multiple lawsuits, conserv[e] judicial resources, and foste[r] reliance on judicial action by minimizing the possibility of inconsistent decisions.'" Id (quoting Montana v. United States.
"[A] federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered." Migra v.
Warren City Sch. Dist. Bd. of Educ..
Defendants argue that the state court action provides sufficient justification for this Court
to apply the preclusive effects of res judicata and dismiss the Amended Complaint. Doc. 37 at 5;
Doc. 41 at 7. Bret responds that the Defendants have failed to establish three of the four elements
required for res judicata in South Dakota citing to Johnson v. Kaemingk.
While South Dakota recognizes the difference between claim and issue preclusion, see
Merchants State Bank v. Light.
The Supreme Court of South Dakota has also occasionally referenced the four elements as
factors. See Faulk v. Faulk.
Federal common law defines issue and claim preclusion differently. See B & B Hardware. Inc.
V. Hargis Indus., Inc.,
Compare id. (applying the elements in a claim preclusion case) and People ex rel. L.S., 721 N.W.2d
83, 89-90 (S.D. 2006) Csamel with Staab v. Cameron.
The earliest articulation of the four elements/factors this Court could find stated in a "res
judicata" case occurred in Moe.
Noble.
In Moe V. Moe. the Supreme Court of South Dakota recognized in part the difference
between claim and issue preclusion.
In Raschke. the court stated: "[t]he general principles relating to the doctrine of res judicata, as
applied in numerous decisions of this court, were summarized in IKeithl. as follows: First, a final
judgment or decree of a court of competent jurisdiction upon the merits is a bar to any future action
between the same parties or their privies upon the same cause of action so long as it remains
unreversed; and, second, a point which was actually and directly in issue in a former action and
was there judicially passed upon and determined by a domestic court or competent jurisdiction
cannot be drawn in question in any future action between the same parties or their privies whether
the cause of action in the two actions be identical or different. Under the first rule the res which
is judicata is the cause of action. Under the second, the res which may be judicata is the particular
issue or fact common to both actions. The first rule involves a plea in bar and the second a plea
of estoppel by judgment. We are here concerned with the application of estoppel by judgment."
Raschke.
courts must give careful consideration to the case at hand before erecting the doctrine's preclusive
bar." People ex rel. L.S.,
B. Four Elements of Res Judieata in South Dakota
1. Same issue, same action
"Res judieata applies only if the second action is brought on the same 'cause of action' as
the first." Hicks v. O'Meara.
I
(S.D. 1985); Hanig.
Defendants urge this Court to apply a different test adopted by the Eighth Circuit, Doc. 37
at 6, which interprets the phrase "'the same claims or causes of action' to mean claims that arise
out of the same nucleus of operative facts." Regions Bank v. J.R. Oil Co..
1989) (same).
,13 *14 The Restatement (Second) of Judgments states: (1) When a valid and final judgment rendered in an action extinguishes the plaintiffs claim pursuant to the rules of merger or ... 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 transaetions, 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 eonforms to the parties' expectations or business understanding or usage.
Lane.
When using the. Eighth Circuit approach, "the legal theories of the two claims are relatively
insignificant because a litigant cannot .attempt to relitigate the same claim imder a different legal
theory of recovery." Costner v. URS Consultants. Inc..
As stated above, the South Dakota test hails from the Eighth Circuit—just an earlier
explication of the test. See Nelson.
action are the same .... That test is whether the wrong for which redress is sought is the same in both actions." (cleaned up and citation omitted)). Yet, the Eighth Circuit has still cited to the same test utilized by South Dakota even after adopting the Restatement (Second) approach. ^ Costner.
153 F.3d at,674 ("[W]e concluded that' in the final analysis the test would seem to be whether the wrongfor which redress is sought is the same in both actions." (cleaned up and citation omitted)).
And while the Supreme Court of South Dakota has not explicitly adopted the Restatement
(Second) approach, see Zebrowski v. Am. Standard Ins. Co. of Wisconsin. No. CV 16-5018-JLV,
Initially, this Court must examine what each cause of action claims. Bret describes the claims he brought in the state court action as:
Conversion, breach of contract, fraud, conspiracy to commit fraud, unjust enrichment, breach of fiduciary duties and negligence, regarding the transfer of *16 record title of the ranch in 1995 from a partnership in which [Bret] and his mother, Osbome, were partners, to a corporation [HRI] that was solely owned by his mother. [Bret] eventually purchased a one-third interest in the corporation from Osbome. [Bret] contended that the 1995 transfer was fraudulent, and that he owned at least a 50% interest in the ranch (land) through the partnership and his ownership of HRI stock. [Bret] sued Osbome, Bryce, Fox and others in the Circuit Court for conversion, fraud, conspiracy to commit fraud, and breach of contract and fiduciary duties.
Doc. 42 at 6 (cleaned up).
In the Amended Complaint, Bret claims the Defendants engaged in a RICO conspiracy to
deceive him into believing he owned an interest in HRI to induce him into making substantial
investments in HRI. Doc. 35 at Tf^f 20-35, 85-97. Importantly, the RICO conspiracy Bret alleges
stems from the same alleged fraudulent transfer of property interest from the partnership to HRI
that formed the central theme of Bret's state court action.
Healv.
35 at 20-^3, 85-97. To state it another way, Bret claimed injury in the state court action from the 1995 transfer from the partnership to HRI because it deprived him of his interest held by the partnership. In the Amended Complaint, Bret claims injury from the 1995 transfer from the partnership to HRI because it was part of an illegitimate stock issuance that ultimately provided the vehicle for the RICO conspiracy. Therefore, the "underlying facts" which give rise to each cause of action are the same.
Bret cites to Golden v. Oahe Enterprises. Inc..
The first action was commenced by the corporation and was based on the contract with Golden. The last action was commenced by Golden and is based on the sale of corporate assets to Cannon and the alleged waste and misconduct of Robert and *17 Donald Emmick as officers of the corporation. The first action involved questions of whether the contract should be rescinded because of fraud or connivance on the part of Golden, mistake in giving consent, or failure of consideration. The counterclaim raised the issue of whether Golden was entitled to delivery of stock in the amount of $16,922.32. The action raises the following issues: whether the Emmicks participated in, approved and benefited from wrongful conduct as officers and directors of the corporation, including waste and misapplication of corporate assets and whether the sale of corporate assets was effected in a manner contrary to state law. The facts determined by the court in the first action were: (a) the corporation's consent to the agreement was not obtained by mistake, fi-aud or connivance, (b) the corporation had received and used the property promised by Golden, (c) Golden had at all times been ready and willing to perform, and,(d) Golden was entitled to stock in the amount of $16,922.32. The above comparison of causes of action, parties, issues and factual determinations involved in these suits demonstrates a degree of dissimilarity that is far too great to support a conclusion that Golden's action is barred as res judicata. The trial court erroneously applied this doctrine in dismissing the action below.
Golden.
Bret next cites to Hicks v. G'Meara to argue for rejection of Defendants' res judicata
defense. Doc. 42 at 9. In Hicks, one claim involved wrongful termination while the other centered
around unpaid overtime wages.
Bret also points to General Drivers & Helpers Union v. Wilson Trailer Co.. 827 F. Supp.
2d 1048, 1053 (D.S.D. 2011), to contend that res judicata does not apply when two claims are
based on different legal theories, but that case involved substantially different claims brought by
different parties to the action. Id ("Cuka's right to apply for unemployment insurance is a personal
right that is based on statute; the Union's right to proceed in this action is based on its contractual
rights under the collective bargaining agreement."). Bret's two claims are not so dissimilar.
Moreover, while Bret's two claims rely on different legal theories, that alone does not bar the
application of res judicata under South Dakota law. See Farmer v. S. D. Dep't of Revenue &
,
)
Regul.,
was the same as in a subsequent action, our review is not restricted to whether the specific question posed by the parties in both actions was the same or whether.the legal question posed by the nature of the suit was the same. Rather, we review whether the claims asserted in both suits arose out of a single dispute and whether one claim has been brought to a final judgment on the merits." (cleaned up and citation omitted)).
Other Supreme Court of South Dakota cases demonstrate that Bret is seeking to redress the same claimed wrong here as in his state case. For example, in Dakota. Minnesota & E. R.R. Corp.
Case 3:21-cv-03004-RAL Document 46 Filed 11/19/21 Page 19 of 30 PageID #: 486
V. Acuity,
While the specific issue in [case I] is not identical to the specific issue in [case II], both issues relate to the same accident, the same set of facts, the same insurance contract and can only be resolved by making a determination of [plaintiff s] rights under that contract. In addition, [plaintiff] knew or should have known of the existence of an unidentified slow moving vehicle when [case I] was tried. In fact, [plaintiff] used evidence of an unidentified slow moving vehicle to holster its claims in [case I] that the accident was caused by something other than the Hy- Rail equipment. We conclude that all claims [plaintiff] had against [defendant] under the provisions of the insurance contract could have been brought in [case I].
Likevnse, in Frigaard v. Seffens,
Similar to Dakota. Minnesota & E. R.R. Corp. and Frigaard. Bret's void stock theory could have been raised in the first action since it involved the same parties and alleged fraud against Bret. Importantly, both of Bret's claims revolve around the same real estate transfer in 1995 from the partnership to HRI. In the state court action, Bret claimed that the transfer in 1995 was part of a scheme to deprive him of his interest in real property held by the partnership. In the Amended Complaint, Bret claims the transfer in 1995 was part of a RICO scheme to use a non-existent corporation to induce him into investing money into the family ranching operation. Even if Bret *20 were claiming different injuries under different legal theories, the operative facts necessary to adjudicate both claims are the same. Therefore, the claim presented in the state court action is essentially the same in the Amended Complaint, and the Defendants have met the first element of res judicata.
2. Final judgment on'the merits
Bret claims that the Defendants do not meet this element because the state court action only
determined that his claims were time-barred by the statute of limitations. Doc. 42 at 10-11. Bret
contends that "expiration of the applicable statute of limitations merely bars the remedy and does
not extinguish the substantive right, so that dismissal on that ground does not have claim-
preclusive effect in other jurisdictions with longer, unexpired limitations periods." Doc. 42 at 11
(citing Semtek IntT Inc. v. Lockheed Martin Corp..
The Supreme Court of South Dakota has stated that "a judgment on the merits is one which
is based on legal rights rather than matters of procedure and jurisdiction." Nelson,
Miller, Federal Practice and Procedure § 4441 (3d ed.), Westlaw (database updated April 2021) ("[A] limitations dismissal is a judgment on the merits that bars a second action on the same claim . . . .")•
Specifically, in Rick v. Wveth, Inc., the Eighth Circuit determined that res judicata could apply to a statute of limitations determination "because the first ease was fully litigated all the way to summary judgment, [and therefore] the prior dismissal on statute of limitations grounds was at least sufficiently close to the merits for claim preclusion purposes to bar a second action." Rick.
As in Rick. Bret's state court action was litigated to the summary judgment stage. Further,
even if the Court applied the traditional rule, it would not protect Bret's claim as the "dismissal on
that ground does not have claim-preclusive effect in other jurisdictions with longer, unexpired
limitations periods." Semteklnt'llnc..
3. Same parties Bret does not contest this element. The parties are the same here as in the state court action. 4. Full and fair opportunity to litigate the issues in the prior adjudication Bret argues he did not have a full and fair opportunity to litigate the Amended Complaint because he only acquired the information he claims establishes a RICO conspiracy on August 8, 2017, when analyzing discovery during the state court action. Doc. 35 at 26-29; Doc. 42 at 12.
The Supreme Court of South Dakota has stated that "claim preclusion not only precludes relitigation of issues previously heard and resolved; it also bars prosecution of claims that could have been raised in the earlier proceeding, even though not actually raised." Am. Fam. Tn.s. Grp.
2009) ("The bar of claim preclusion applies not only to all matters litigated and determined by such judgment but also as to all relevant issues which could have been presented[.]" (cleaned up and citation omitted)); Nebraska Pub. Advocate v. Nebraska Pub. Serv. r.nmm'n 779 N.W.2d *23 328, 334 (Neb. 2010) (noting that res judicata requires preclusive effect for issues that could have been raised and the rule applies to questions "relevant to and falling within the purview of the original action").
As previously discussed under the fust element, the facts underlying the two claims arise
from the same cause of action and are therefore relevant to one another. Indeed, Bret obtained the
information necessary to make the claims in the Amended Complaint six weeks before the
determination of the state circuit court action, but Bret contends he was burdened by the state
court's time constraints. Doc. 35 at ^ 26—1% Doc. 42 at 17. As the Supreme Court of South
Dakota has stated, "whether [a party] had a full and fair opportunity to litigate is not determined
by whether it is still possible to find additional evidence concerning that claim. As other courts
have held, newly-discovered evidence does not provide an exception to res judicata." Est. of
Johnson bv & through Johnson v. Weber.
Res judicata is based on the principles that "[a] person should not be twice vexed for the
same cause and it is for the public good that there be an end to litigation." People ex rel. L.S.. 721
N.W.2d at 90 (cleaned up and citation omitted). "When a party to litigation fails to develop all of
the issues and evidence available in a' case, the party is not justified in later trying the omitted
issues or facts in a second action based on the same claim." Am. Fam. Ins. Grp.,
IV. Statute of Limitations
Defendants also contend Bret's Amended Complaint is time-barred. Doc. 37 at 9; Doc.
39; Doc. 41 at 13. Bret claims that he only discovered the information that forms the foundation
of the Amended Complaint on August 8, 2017, when analyzing discovery in the state circuit court
action. Doc. 35 at 2,26. While "[jjudicial economy supports dismissing a complaint for failure
to satisfy the statute of limitations," Waldner.
"Civil RICO actions are governed by a four-year statute of limitations." Ass'n of
Commonwealth Claimants v. Movlan;
Wood.
The injury discovery rule has both a subjective and objective component. Waldner. 277
F.R.D. at 407. "The court must ask whether the plaintiff actually knew of her injury, and also,
using a reasonable person standard, whether she should have known." Waldner.
"The injury discovery rule also provides that a new cause of action accrues for each new
and independent injury, even if the RICO violation causing the initial injury happened more than
four years before." Kraft.
Defendants argue the statute of limitations has passed because Bret should have been aware of the alleged defects in the corporate formation of HRI—^i.e., that the initial shares in HRI issued to Osbome in 1994 and transferred to Bret in 2000 were allegedly void—long ago. Doc. 37 at 11- 12; Doe. 41 at 13-16. Bret contends the statute of limitations has not run because the defects in formation were only revealed to him oh August 8, 2017, when he obtained certain tax documents as part of discovery in the state court action. Doc. 35 at 2,26. Bret claims that if he had known of the mistakes in formation of HRI, he never would have subsequently invested over $2 million in the entity. Doc. 35 at ^ 58.
Applying the Eighth Circuit's "injury discovery" rule, Bret's argument fails because he
knew or should have known of the transaction underlying the civil RICO claim at the latest when
he purchased one-third of HRI in 2000 and became president of HRI. Bret's Amended Complaint
admits HRI's Articles of Incorporation were filed with the South Dakota Secretary of State and
thus publicly available as early as 1994. Doc. 35 at 122. Furthermore, Bret would have had an
opportunity to evaluate the validity of the HRI shares when he initially purchased a one-third
interest in HRI along with his brothers in 2000. Doc. 35 at 39-40. Finally, as president of HRI
for seventeen years, Bret would have had ample opportunity to inspect the corporate records and
discover any defects in formation. S^ Healv.
Bret's argument that he only discovered the defect in formation in 2017 during discovery
is one that this Court has disapproved of previously. S^ Waldner.
.[,] a civil RICO claim accrues only when the claimant discovers, or should discover, both an injury and a pattern of RICO activity").
Bret cites to three cases to contest the statute of limitations defense, but they are distinguishable on factual grounds. Doc. 42 at 19. In In re: EpiPen Direct Purchaser Litigation.
Doc. 35 at Iflf 3, 4, 20-31, 33^3,45.
This Court does not foresee any "odd consequence" to granting Defendants' motion to dismiss given that Bret could have discovered the corporate defects at the center of his Amended Complaint using reasonable diligence when he purchased one-third of the shares of HRI in 2000 and throughout his seventeen years as president of HRI. For example, in Long Island Lightinp; Co.
V. Imo Indus. Inc.,
Bret cites to two other cases applying the injury discovery rule. Chambers v. N. Am. Co.
for Life & Health Ins.. No. 411CV00579JAJCFB,
court action provide this Court with enough information to determine that Bret should have been aware of his injury before the statute of limitations expired.
In the last case Bret cites, Wal-Mart Stores Inc. v. Watson, 94 F. Supp. 2d at 1029, the court determined the pleading stage was too early to dismiss a complaint that arose over-the quality of goods purchased by an apparel buyer. The court rejected the defendant's contention that Wal Mart should have been aware of its injury at the time of purchase: Id. at 1034. However, Wal Mart Stores did not involve defective .goods, but rather a scheme to overpay certain distributors for a low-quality product. Id. at 1027-28. The court stated, "[ c ]ertainly the court cannot tell from the face of the complaint whether Wal-Mart, a multi-state/multi-national company, had, or should· have had, some type of accounting or review system in place that should have caused it to 'discover' the inferior quality of the· apparel and/or the excessive quantity of apparel being purchased." Id. at 1034. Bret's case is quite f!ifferent. Whether at the time of the initial share transfer in 2000 or when managing HRI as president for seventeen years, Bret should have discovered through reasonable diligence his claimed injury before the RICO statute oflimitations passed. Accordingly, Bret's Amended Complaint has failed to state a claim wit�n the statute of limitations and is dismissed. Conclusion
V. For the reasons explained above, it is hereby ORDERED that the Defendants' Motions to Dismiss, Docs. 36, 38 and 40, are granted. It is further
ORDERED that, because the more recent motions to. dismiss are granted, the motions filed in Docs. 11, 14, 24, 30 and 32 are deemed moot.
29
DATED this 19th day of November, 2021.
BY THE COURT: DBERTO A. LANGE
ROBERTO CHIEF JUDGE