RRR, INC., Plаintiff, v. Thomas M. TOGGAS, et al., Defendants.
Civil Action No. 11-1622 (BAH)
United States District Court, District of Columbia.
April 13, 2015
BERYL A. HOWELL, United States District Judge
In sum, the plain meaning of Section
III. Conclusion
For the foregoing reasons, it is hereby
ORDERED that the CSE Defendants’ Motion for Approval of the Settlement Agreement and Dismissal of the Qui Tam Action [ECF No. 302] is DENIED.
SO ORDERED.
William Franklin Burton, Washington, DC, for Defendant.
MEMORANDUM OPINION
BERYL A. HOWELL, United States District Judge
Pending before the Court in this long-running action is Defendants Thomas M. Toggas and Kathryn Toggas’ Motion for Relief from Judgment (“Defs.’ Mot.“), ECF No. 72, which the Court construes as a motion for relief, pursuant to
I. BACKGROUND
The factual background of this action, brought pursuant to the District of Columbia‘s Uniform Fraudulent Transfer Act (thе “DCUFTA“),
The instant suit alleges that the defendants engaged in various fraudulent transfers of assets to stymie the plaintiff‘s attempt to collect on a judgment rendеred by a South Carolina court in 2003. See generally Compl., ECF No. 1. The defendants moved to dismiss this matter twice, Defs.’ Mots. Dismiss at 1, ECF Nos. 4, 5; Defs.’ 2013 Mot. Dismiss at 1, and both times the Court denied the motions, Order, Jan. 27, 2012, at 1, ECF No. 12; January 2014 Mem. Op. at 1.1 The most recent motion to dismiss occurred in December 2013, after extensive discovery and motions practice, in which the defendants challenged the Court‘s subject matter jurisdiction over this action, less than a month before a bench trial was set to begin. Defs.’ 2013 Mot. Dismiss at 1. The defendants averred that the South Carolina judgment had been extinguished as a matter of law and, consequently, the plaintiff was no longer a “creditor” within the meaning of the DCUFTA and, thus, there was no case or controversy at issue. See generally id. The defendants’ motion was denied in January 2014, January 2014 Mem. Op. at 1, and the parties were ordered to appear for a bench trial on January 13, 2014, as previously scheduled, Minute Order, Nov. 25, 2013.
On January 13, 2014, only Defendants Kathryn Toggas and Net Branch Capital, LLC appeared for trial, however, since Defendant Thomas Toggas was absent due to his filing for bankruptcy in Pennsylvania that very morning. Trial Tr. (“Tr.“) at 2:20-23, ECF No. 61. During a brief recess aftеr opening statements, but before testimony had begun, Defendant Kathryn Toggas filed for bankruptcy in the District of the District of Columbia. Id. 36:1-4. The filing of these petitions resulted in an automatic stay of proceedings pursuant to
At the conclusion of the bench trial, the plaintiff orally moved for an expedited factual finding that the defendants acted in bad faith by filing their bankruptcy petitions on the first day of trial. Id. at 233:11-234:21. That motion was granted in part and denied in part after the Court received briefing from the parties. Mem. & Order at 3, ECF No. 59. Consideration of the case was then stayed under the automatic stay provision of
In late Nоvember, 2014, the plaintiff filed a “Notice of Bankruptcy Court Rulings Allowing This Case To Proceed,” as required by the Court‘s Order outlining post-trial proceedings, and advised the Court that the bankruptcy courts with jurisdiction over Defendant Thomas Toggas and Defendant Kathryn Toggas’ petitions had granted relief from the bankruptcy code‘s discharge injunction to allow this
Six days after submitting their response to the plaintiff‘s proposed conclusions of law--which submission rendered the bench trial ripe for decision--the defendants filed the instant motion styled a “Motion for Relief Pursuant to FRCP 60(b) From This Court‘s Interim Order Entered On January 9, 2014 Denying the Defendants’ Motion to Dismiss the Above Captioned Case.” Defs.’ Mot. at 1. The defendants’ motion essentially resurrects the arguments in their December 2013 motion to dismiss, but this motion is predicated on a new, salient fact: namely, that a South Carolina court definitively ruled that the underlying judgment on which the plaintiff‘s fraudulent transfer action was based has been extinguished as a matter of law. Id. Consequently, the defendants allege that the plaintiff lacks standing to pursue this action since the DCUFTA “does not create an independent cause of action to avoid fraudulent transfers unless there is a ‘debt’ owed by a debtor to a creditor that is separate and distinct from [the] fraudulent transfers themselves.” Id. at 2.
The plaintiff rightfully points out that the Court‘s ruling denying the defendants’ motion to dismiss is not a “final judgment” for the purposes of Rule 60(b), the procedural rule initially cited by the defendants in their filing. Pl.‘s Opp‘n Defs.’ Mot (“Pl.‘s Opp‘n“) at 3, ECF No. 74; see also
II. LEGAL STANDARD
A. Rule 12(b)(1)
“‘Federal courts are courts of limited jurisdiction,’ possessing ‘only that power authorized by Constitution and statute.‘” Gunn v. Minton, --- U.S. ---, 133 S. Ct. 1059, 1064, 185 L. Ed. 2d 72 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S. Ct. 1673, 128 L. Ed. 2d 391 (1994)). Indeed, federal courts are “forbidden . . . from acting beyond our authority,” NetworkIP, LLC v. FCC, 548 F.3d 116, 120 (D.C. Cir. 2008), and, therefore, “have an affirmative obligation ‘to consider whether the constitutional and statutory authority exist for us to hear each dispute.‘” James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1092 (D.C. Cir. 1996) (quoting Herbert v. Nat‘l Acad. of Sciences, 974 F.2d 192, 196 (D.C. Cir. 1992)). Absent subject matter jurisdiction over a case, the court must dismiss it. Arbaugh v. Y & H Corp., 546 U.S. 500, 506, 126 S. Ct. 1235, 163 L. Ed. 2d 1097 (2006);
When considering a motion to dismiss under
Moreover, in evaluating subject matter jurisdiction, the court, when necessary, may “‘undertake an independent investigation to assure itself of its own subject matter jurisdiction,‘” Settles v. U.S. Parole Comm‘n, 429 F.3d 1098, 1107 (D.C. Cir. 2005) (quoting Haase v. Sessions, 835 F.2d 902, 908 (D.C. Cir. 1987)), and consider facts developed in the record beyond the complaint, id. See also Herbert, 974 F.2d at 197 (in disposing of motion to dismiss for lack of subject matter jurisdiction, “where necessary, the court may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court‘s resolution of disputed facts“); Alliance for Democracy v. FEC, 362 F. Supp. 2d 138, 142 (D.D.C. 2005). The burden of establishing any jurisdictional facts to support the exercise of the subject matter jurisdiction rests on the plaintiff. See Hertz Corp. v. Friend, 559 U.S. 77, 96, 130 S. Ct. 1181, 175 L. Ed. 2d 1029 (2010); Thomson v. Gaskill, 315 U.S. 442, 446, 62 S. Ct. 673, 86 L. Ed. 951 (1942); Moms Against Mercury v. FDA, 483 F.3d 824, 828 (D.C. Cir. 2007).
B. Standing
Article III of the Constitution restricts the power of federаl courts to hear only “Cases” and “Controversies.”
III. DISCUSSION
Critical to resolving the instant motion is the South Carolina court opinion cited by the defеndants as evidence that the judgment against them has been extinguished as a matter of law. Consequently, the Court first summarizes that opinion and its holdings before turning to the resolution of the instant motion.
A. The South Carolina Judgment
Nearly three years after the instant suit was filed, on August 15, 2014, the defendants2 filed a declaratory judgment action
South Carolina law states that judgments may be executed “at any time within ten years from the date of the original entry thereof and shall have active energy during such period.” Id. at 2-3 (quoting
A “narrow exception” to this general rule exists “if the judgment creditor has completed all of its efforts under thе South Carolina execution and Supplementary Proceedings processes prior to the ten-year expiration date and is awaiting the issuance of an execution order by the court.” Id. (citing Linda Mc Co., Inc. v. Shore, 390 S.C. 543, 703 S.E.2d 499, 505 (2010)). The South Carolina court held that the plaintiff had “not complied with any of the applicable statutes in South Carolina to collect on its judgment,” as required by Linda Mc Company, Inc. Id. at 5. The South Carolina court noted that there were “no collection efforts pending in South Carolina,” “no hearing on Supplementary Proceedings,” and no party was “awaiting an execution order from any court.” Id. Moreover, had the plaintiff initiated proceedings in South Carolina to collect on the judgment, the defendants “would have had to post a supersedeas bond to stay those execution proceedings during their appeals” before the South Carolina Supreme Court. Id. at 6. Since the plaintiff failed to take any action to collect on its judgment in South Carolina, the South Carolina court held that the plaintiff “cannot complain now that the judgment has expired when it failed to pursue its rights during the appeals” raised by thе defendants. Id.3
The South Carolina court specifically addressed the instant proceedings, stating that the plaintiff was “currently pursuing a fraudulent transfer action in the District
With this context, the instant motion is now examined.
B. The Extinguishment Of The Underlying Judgment Is Fatal To The Plaintiff‘s DCUFTA Claims.
The defendants argue that the Court‘s Order denying their motiоn to dismiss in 2014 should be reconsidered in light of the South Carolina court‘s decision that the underlying judgment on which the plaintiff‘s action is based has expired, since the S.C. Opinion has res judicata effect on this action. See Defs.’ Mot. at 1-2. The defendants further argue that if the S.C. Opinion is given preclusive effect, the plaintiff‘s claims must fail. See id. The Court examines each contention in turn.
1. The South Carolina Opinion Has Preclusive Effect
In the January 2014 Memorandum Opinion denying the defendants’ December 2013 Motion to Dismiss, this Court held that the 2003 judgment against the defendants had not expired because (1) the plaintiff had instituted an enforcement aсtion that triggered the exception outlined in Linda Mc Company, Inc., and (2) the policy implication of the defendants’ view was that “judgment debtors would be encouraged to engage in conniving or otherwise unscrupulous practices to avoid payment of their debts for ten years in an effort to be automatically relieved from the obligation by the passage of time.” January 2014 Mem. Op. at 8-9.
The final judgment of the South Carolina court, interpreting South Carolina law, directly contradicts this Court‘s interim holding. The S.C. Opinion states clearly that the instant action before this Court “is not an exeсution proceeding that would trigger the ‘narrow’ exception under Linda Mc Co.” S.C. Op. at 7 n.2.5 The defendants argue that this ruling should be given res judicata effect in this matter. Defs.’ Mot. at 1.
For another court‘s opinion to be given res judicata effect, three elements must be met:
[1] the same issue now being raised must have been contested by the parties and submitted for judicial determination in the prior case[; 2], the issue must have been actually and necessarily determined by a court of competent jurisdiction in that prior case[; and 3], preclusion in the second case must not work a bаsic unfairness to the party bound by the first determination.
Martin v. U.S. Dep‘t of Justice, 488 F.3d 446, 454 (D.C. Cir. 2007) (quoting Yamaha
2. The Plaintiff Lacks Standing To Pursue Its DCUFTA Claims
Although the S.C. Opinion conclusively determines that the 2003 judgment against the defendants is extinguished, that finding does not end the inquiry. As this Court noted in dicta in the January 2014 Memorandum Opinion, there is some question as to whether the DCUFTA claims would survive the extinguishment of the underlying judgment. See Mem. and Order at 9-10. A close review of the relevant case law shows that, in this instance, the plaintiff‘s claims cannot survive.
The District of Columbia does not appear to have addressed the precise situation at issue here, where a judgment creditor‘s judgment is extinguished while a DCUFTA action is pending. Two states that have considered such actions, Oregon and South Carolina, have held unequivocally that the remedial nature of the UFTA means any fraudulent transfer action cannot exist independent of a valid debt.
In Carr v. Guerard, a case relied upon by the South Carolina court in its opinion, the South Carolina Supreme Court held that a fraudulent transfer action does not survive if the underlying judgment has been extinguished as a matter of law. Carr, 365 S.C. 151, 616 S.E.2d 429, 430 (2005). In Carr, a purported creditor initiated an action under South Carolina‘s codification of the Statute of Elizabeth, a precursor to the Uniform Fraudulent Transfer Act, see Donell v. Kowell, 533 F.3d 762, 774 (9th Cir. 2008) (citing Statute of Elizabeth as among “laws governing fraudulent transfer [that] have existed for centuries” and “remarkably similar to the current version” of the UFTA), after the judgment on which the creditor was attempting to collect had expired, Carr, 616 S.E.2d at 430. The Carr
First, the Carr court held that “as soon as his judgment became mоre than ten years old, [the creditor] lost his judgment-creditor status. Because he is no longer a creditor, he lacks standing to bring an action under the Statute of Elizabeth.” Id. at 430. Second, even if the creditor still had standing, the Carr court noted that the setting aside of a fraudulent conveyance “would be a meaningless exercise” since the creditor would no longer have any right to collect on the judgment the fraudulent conveyance was used to prevent payment upon. Id. at 431. Thus, the extinguishing of the judgment in Carr also extinguished any ability to raise a fraudulent transfer action. Sеe id.
The Oregon courts have reached the identical conclusion, based upon the UFTA itself. In Oregon Recovery, LLC v. Lake Forest Equities, Inc., 229 Or. App. 120, 211 P.3d 937, 939 (2009), the plaintiffs initiated a suit under Oregon‘s version of the UFTA seeking to set aside certain conveyances as designed to frustrate their recovery of a judgment that had not yet expired. While the UFTA action was pending, the judgments on which the UFTA action was based expired. Id. The Oregon court found that “the remedies for relief from a fraudulent transfer are available to creditors,” which are defined as those who have “a claim against a debtor.” Id. at 941. Once the judgments expired against the defendants, the Oregon court held, the plaintiffs “were no longer creditors of defendants, because the debt that formed the basis for their claims against defendants ceased to exist.” Id.
The court in Oregon Recovery, LLC analogized to another fraudulent transfer case where the plaintiff‘s claims were mooted by the satisfaction of the underlying judgment before judgment on the fraudulent transfer action had been entered. Id. at 942 (citing Goodwin v. Usher, 103 Or. App. 91, 795 P.2d 1112 (Or. App. Ct. 1990)). In that case, the Oregon court similarly held that once the underlying judgment on which a fraudulent transfer action had been satisfied, the fraudulent transfеr action was moot since “the plaintiff was no longer a creditor of the defendant entitled to a remedy.” Id.
Oregon Recovery, LLC involved analogous facts to those at issue here: in both that case and the instant matter, an UFTA action was initiated prior to the extinguishment of a valid judgment as a matter of law. See id. at 939. The Oregon Recovery, LLC court held that once the underlying judgment ceased to exist, the fraudulent transfer action similarly ceased to exist since the plaintiff was no longer a “creditor” entitled to relief under the statute. Id. at 942. The DCUFTA contains a provision common to states thаt have enacted the UFTA whereby the DCUFTA “shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it.”
The cases relied upon the plaintiff, and cited by this Court in its dicta in the January 2014 Memorandum Opiniоn, do not counsel any differently. In three of the cases cited by the plaintiff, the underlying judgment on which a fraudulent transfer action was based remained valid.
3. The Plaintiff‘s Judgment Against Net Branch Capital Does Not Survive The Extinguishment Of The South Carolina Judgment
In a last ditch effort to save its case, the plaintiff asserts that its judgment from the D.C. Superior Court “is not a domesticated South Carоlina judgment” and is “a valid, unexpired, and enforceable District of Columbia judgment against Defendant Net Branch.” Pl.‘s Opp‘n at 6. The plaintiff is incorrect.
The plaintiff‘s D.C. judgment against Defendant Net Branch Capital, LLC, is a garnishment judgment issued when the defendant “failed to respond to the Superior Court‘s writ of garnishment . . . under
* * *
To sum up, the S.C. Opinion has preclusive effect in this Court to the extent that the S.C. Opinion holds that the 2003 judgment against the defendants upon which the plaintiff‘s DCUFTA action is based has been extinguished. In the interest of uniformity, and absent precedent under D.C. law, the Court will follow the courts in Oregon and South Carolina which have found that once a judgment has been extinguished as a matter of law, any fraudulent transfer action based upon that judgment is also extinguished. To the extent that the plaintiff asserts that its District of Columbia judgment against Net Branch Capital, LLC, remains valid, the plaintiff is incorrect because that garnishment action is based on a judgment that is no longer valid. In оther words, this Court lacks subject matter jurisdiction over this action because there is no longer an active case or controversy between the parties, since the extinguishment of the 2003 judgment also extinguished the plaintiff‘s DCUFTA claims.
Although this may appear to be a harsh result, particularly in the context of the defendants’ flagrant abuses of the discovery process and dilatory tactics, the plaintiff could easily have avoided it by instituting proceedings at any point in the ten years following its judgment in South Carolina to collect on that judgment. See S.C. Op. at 6. At the vеry least, the plaintiff would have forced the defendants to put forward a supersedeas bond in order to avoid paying the plaintiff immediately. Id. The plaintiff‘s failure to “institute[] any collection efforts in South Carolina on the judgment despite its right to do so 10 days after the jury verdict was entered as a judgment,” id. (emphasis in original), is ultimately responsible for the dismissal of the plaintiff‘s claims here.
IV. CONCLUSION
For the foregoing reasons, the defendants’ motion is granted and this matter is dismissed under
An Order consistent with this Memorаndum Opinion will issue contemporaneously.
Rhonda D. THEUS, Plaintiff, v. SELENE FINANCE LLC, et al., Defendants.
Civil Action No. 14-1280 (ABJ)
United States District Court, District of Columbia.
Signed April 14, 2015