Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-14-00031/USCOURTS-ca10-14-00031-0/pdf.json

Parties Involved:
Florado Partners, LLC
Appellee
Ronald Duane Gollehon
Appellant

Document Text:

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

April 17, 2015

Blaine F. Bates

Clerk

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE RONALD DUANE

GOLLEHON,

Debtor.

BAP No. CO-14-031

FLORADO PARTNERS, LLC,

Plaintiff – Appellee,

Bankr. No. 10-28933

Adv. No. 11-01298

Chapter 7

v. OPINION

*

RONALD DUANE GOLLEHON,

Defendant – Appellant.

Appeal from the United States Bankruptcy Court

for the District of Colorado

Before THURMAN, Chief Judge, CORNISH, and JACOBVITZ, Bankruptcy

Judges.

CORNISH, Bankruptcy Judge.

Debtor appeals the bankruptcy court’s order and judgment denying him a

discharge because he made fraudulent transfers, failed to maintain adequate

records of financial condition, made intentionally misleading statements to

prevent the Chapter 7 trustee from discovering the nature of his financial affairs,

and failed to explain loss of assets. Plaintiff, an LLC in which debtor indirectly

holds a 34% ownership interest, brought this adversary proceeding after obtaining

This unpublished opinion may be cited for its persuasive value, but is not

*

precedential, except under the doctrines of law of the case, claim preclusion, and

issue preclusion. 10th Cir. BAP L.R. 8026-6.

BAP Appeal No. 14-31 Docket No. 37 Filed: 04/17/2015 Page: 1 of 19
a judgment against debtor in state court. On appeal, debtor does not contest the

bankruptcy court’s findings regarding his misconduct or its conclusions that he is

not entitled to a discharge. Instead, debtor argues only that plaintiff lacked

authority to commence the adversary proceeding and the bankruptcy court erred

by denying his motion to dismiss on that ground. Having reviewed the record and

applicable law, we affirm the bankruptcy court’s order.

I. BACKGROUND

1

Debtor Ronald Duane Gollehon (“Gollehon”) was engaged in real estate

development and conducted business activities using a multitude of corporate

entities. In July 2004, Gollehon, Kenneth M. Cahill (“Cahill”), and David Curtis

Lundberg (“Lundberg”) formed Florado Partners LLC (“Florado”) to combine

various property interests and possible development projects. Gollehon

2

participated in Florado in his capacity as manager of Summerlin Equities LLC,

which owned a 34% interest. Summerlin Equities, in turn, was a family holding

company owned by Gollehon, his wife, and two adult sons. Lundberg

3

participated in Florado in his capacity as managing principal of L5 Holdings LLC,

which owned a 33% interest. Cahill participated in Florado as an individual and

owned the remaining 33% of Florado. A transfer of 3% of each 33% interest

4

held by Lundberg and Cahill was subsequently made to Lundberg’s father in

Unless otherwise indicated, this factual description is taken from the

1

bankruptcy court’s Order regarding Defendant’s motion to dismiss (“Order

Denying Dismissal”), in Appellant Ronald Gollehon’s Appendix (“Appellant’s

App.”) at 182.

Arbitrator’s Findings of Fact, Conclusions of Law, Ruling and Award

2

(“Arbitration Ruling”) at 3-4, in Appellant’s App. at 94-95.

Findings of Fact and Conclusions of Law (“Discharge Opinion”) at 1, in

3

Appellant’s App. at 268.

Arbitration Ruling at 5, in Appellant’s App. at 96.

4

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BAP Appeal No. 14-31 Docket No. 37 Filed: 04/17/2015 Page: 2 of 19
consideration of a loan to Florado.

5

Gollehon drafted Florado’s operating agreement, which was executed by

the members in August 2004 (“Operating Agreement”). The Operating

Agreement appointed Gollehon and Lundberg as managing principals, with

Gollehon handling the day to day financial management of Florado. In October

2004, the Operating Agreement was amended to appoint Cahill as an additional

managing principal.

6

Relations between the members of Florado soon turned acrimonious, and by

the end of December 2004 it was apparent that Florado would be unable to raise

funds for further work on projects it had undertaken. In January 2005, Cahill and

7

the Lundbergs removed Gollehon as a managing principal, obtained a writ of

replevin, and seized Florado’s records from Gollehon. Immediately thereafter,

8

Florado and its members filed a complaint against Gollehon in Colorado state

court. At about the same time, Gollehon executed the Summerlin Trust as sole

settlor, naming his wife and sons as beneficiaries. He then transferred his

9

ownership interest in the Summerlin Equities family holding company, which

owned the Florado interest, to the Summerlin Trust.

In its state court suit, Florado alleged Gollehon breached his fiduciary

duties to the other members of Florado and committed fraud in exercising his

responsibilities as a managing principal. Gollehon filed a motion to compel

arbitration because Florado’s Operating Agreement required all disputes between

managing principals and/or members to be resolved through arbitration. An

Id.

5

Id.

6

Id. at 6-7, in Appellant’s App. at 97-98.

7

Id. at 7-8, in Appellant’s App. at 98-99.

8

Discharge Opinion at 3, in Appellant’s App. at 270.

9

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arbitrator heard the matter in 2006. In its March 2008 ruling in favor of Florado,

the arbitrator concluded Gollehon operated Florado and many of his other real

estate partnerships and corporate entities as his alter ego, and that he

10

“consistently ignored any distinctions about the duties and obligations he might

owe to one of the entities he had organized as opposed to another.” In June

11

2009, the Colorado state court confirmed the arbitration award and entered

judgment against Gollehon in the amount of $984,681.09 (“Judgment”). Gollehon

did not appeal the Judgment.

Gollehon filed for Chapter 7 bankruptcy protection on July 28, 2010,

scheduling assets of $2,900 and liabilities of $2,145,950 (all unsecured

nonpriority claims including the Judgment). He also scheduled monthly

12

expenses of $5,495, and no current income. On an addendum to his Statement

13 14

of Financial Affairs, he listed thirty-six different business entities, most of them

real estate related, all formed between 2000 and 2010, and located at either his

home address or one single business address.

15

On May 6, 2011, Florado filed an adversary complaint objecting to

16

Gollehon’s discharge pursuant to 11 U.S.C. § 727(a)(2), (a)(3), (a)(4), (a)(5), and

Arbitration Ruling at 6-7, in Appellant’s App. at 97-98.

10

Id. at 5, in Appellant’s App. at 96.

11

Chapter 7 Petition Summary of Schedules, in Appellee’s Supplemental

12

Appendix (“Appellee’s App.”) at 53.

Schedule J - Current Expenditures of Individual Debtor(s), in Appellee’s

13

App. at 70.

Schedule I - Current Income of Individual Debtor(s), in Appellee’s App. at

14

69.

Statement of Financial Affairs (addendum to question 18 - Nature, location

15

and name of business), in Appellee’s App. at 51-52.

Complaint Objecting to Discharge, in Appellant’s App. at 29.

16

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BAP Appeal No. 14-31 Docket No. 37 Filed: 04/17/2015 Page: 4 of 19
(a)(6). The bankruptcy court described the complaint as:

17

premised upon allegations including those underlying the Judgment,

such as a pattern and practice of transferring funds to third party

insiders, failure to disclose assets, failure to disclose partnerships

with third parties, failure to account for the dissipation of assets,

destruction of financial records and failure to produce financial

records in response to subpoenas, transfer of assets to insider third

parties within a year of the petition date and failure to disclose those

transactions in his statement of financial affairs and schedules, as

well as postpetition transfer of estate property without court

authorization.

18

Gollehon filed an answer on June 17, 2011, with dubious responses to Florado’s

allegations and argued Florado lacked standing and was acting ultra vires because

it did not have the requisite consent to sue under its Operating Agreement.

19

Florado then sought and was granted leave to file an amended complaint

and did so on November 1, 2011 (“Complaint”). Gollehon responded by filing a

20

motion to dismiss the Complaint pursuant to Federal Rule of Civil Procedure

12(b)(1) and (6) (“Motion to Dismiss”), arguing in part that Florado was

21

required under its Operating Agreement to plead unanimous consent from all of

its managers or members as a condition for moving forward with the merits of its

§ 727 adversary proceeding. Florado countered that it had standing as a creditor

22

Unless otherwise indicated, all future statutory references in text are to the

17

Bankruptcy Code, Title 11 of the United States Code.

Order Denying Dismissal at 3, in Appellant’s App. at 184.

18

Answer, in Appellant’s App. at 59.

19

Amended Complaint Objecting to Discharge, in Appellant’s App. at 74.

20

According to Florado, “[t]he proposed Amended Complaint attempts to clarify the

prior allegations and eliminates several exhibits in an effort to have the Debtor

understand the allegations and properly admit or deny the truth of such

allegations.” Florado Partners, LLC’s Response to Motion to Dismiss at 4, in

Appellant’s App. at 143.

Unless otherwise indicated, all future references in text to “Rule” are to the

21

Federal Rules of Civil Procedure.

Defendant’s Motion to Dismiss Pursuant to Fed. R. Bankr. P. 7012(b) and

22

Fed. R. Civ. P. 12(b)(1) and 12(b)(6) (“Motion to Dismiss”) at 3, in Appellant’s

(continued...)

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to object to Gollehon’s discharge and that Gollehon’s Motion to Dismiss was an

unsupported collateral attack on the Judgment barred by the doctrine of res

judicata. On May 11, 2012, following an evidentiary hearing, the bankruptcy

23

court entered an order denying the Motion to Dismiss (“Order Denying

Dismissal”). The bankruptcy court primarily concluded that, based on the rules

24

of prior adjudication, Gollehon was precluded from challenging Florado’s

authority to sue in the adversary proceeding because it constitutes an

impermissible collateral attack on the Judgment. Following the bankruptcy

court’s denial of his Motion to Dismiss, Gollehon challenged Florado’s authority

or capacity in his answer to the Complaint and in the joint pretrial statement, but

did not raise the issue again before the bankruptcy court.

The Complaint proceeded to trial. After a three-day hearing, the

bankruptcy court concluded Gollehon was a sophisticated businessman with a

college education and more than 30 years of experience who “chose to create

numerous separate entities and to engage in business with foreign citizens and in

(...continued)

22

App. at 90. The body of the Motion to Dismiss also states that “[b]ecause the

basis for this Motion is that Florado lacks standing or the legal capacity to

prosecute this action, this Motion may be treated as a motion to dismiss for lack

of subject matter jurisdiction. . . . Alternatively, this Motion may be considered

and determined under [Rule 12(c), motion for judgment on the pleadings].” Id. at

2, in Appellant’s App. at 89. In his reply brief on appeal, Gollehon again

characterizes his Motion to Dismiss as filed pursuant to Rule 12(b)(1) for lack of

subject matter jurisdiction, or alternatively, for judgment on the pleadings under

Rule 12(c). However, for purposes of a Rule 12(b)(1) motion, Gollehon conflates

standing with capacity to sue, which although related, are separate concepts

governed by different rules. Lack of capacity to sue is not a matter of subject

matter jurisdiction in this case. See 5A Charles Alan Wright et al., Fed. Prac. &

Proc. Civ. §§ 1293, 1295, and 6A Charles Alan Wright et al., Fed. Prac. & Proc.

Civ. § 1559 (3d ed. 2014). Although standing to sue is required for subject matter

jurisdiction, there is no actual dispute regarding Florado’s standing, only its

capacity to sue.

Florado Partners, LLC’s Response to Motion to Dismiss Pursuant to Fed.

23

R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(1) and 12(b)(6), in Appellant’s

App. at 140.

Order Denying Dismissal, in Appellant’s App. at 182.

24

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foreign countries as part of a complex financial structure.” However, due to

25

lack of documentation, the bankruptcy court concluded it could not “determine

whether and to what extent Gollehon directly or indirectly owned an interest in

any of his entities or their assets.” Nor could it determine Gollehon’s material

26

business transactions or his true financial condition. As to Gollehon’s testimony

27

as a witness, the bankruptcy court found him to be “inconsistent, evasive, and

lacking credibility,” and noted that he even “disagreed with the ‘undisputed facts’

submitted to this Court prior to trial, which facts were prepared with the

assistance of Gollehon’s counsel.”

28

On June 25, 2014, the bankruptcy court entered a judgment denying

Gollehon a discharge (“Order Denying Discharge”) based on § 727(a)(2), (a)(3),

(a)(4), and (a)(5), and its related Discharge Opinion. The bankruptcy court

29

ruled Gollehon had: 1) defrauded his creditors by making numerous transfers of

assets within one year prior to filing bankruptcy; 2) failed to maintain business

30

records from which his true financial condition could be ascertained; 3)

31

intentionally made omissions or misleading statements in order to prevent the

Chapter 7 trustee from discovering the nature of his financial affairs, and 4)

32

failed to explain the deficiency of assets to meet his liabilities because he

deliberately maintained very few assets in his individual name by transferring

Discharge Opinion at 18, in Appellant’s App. at 285.

25

Id. at 19, in Appellant’s App. at 286.

26

Id.

27

Id. at 14, in Appellant’s App. at 281.

28

Judgment (Docket No. 171), in Appellant’s App. at 4.

29

Discharge Opinion at 15-17, in Appellant’s App. at 282-84.

30

Id. at 17-19, in Appellant’s App. at 284-86.

31

Id. at 19-22, in Appellant’s App. at 286-89.

32

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them to the accounts of his entities, friends, or family members. Gollehon

33

timely filed a notice appealing the bankruptcy court’s Order Denying Discharge

on July 7, 2014.

On appeal, Gollehon challenges only the bankruptcy court’s Order Denying

Dismissal. That order was not appealable when entered because an order denying

a Rule 12(b) motion to dismiss is interlocutory in nature. Gollehon does not

34

contend the bankruptcy court erred in any of its findings of fact or conclusions of

law that he is not entitled to a discharge based on his copious improprieties.

Instead, Gollehon attempts to resurrect his argument regarding Florado’s capacity

to once again avoid the consequences of his misdeeds by “cloaked . . . reliance on

corporate governance.”

35

II. APPELLATE JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction to hear timely filed appeals from “final

judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,

unless one of the parties elects to have the district court hear the appeal.

36

Neither party elected to have this appeal heard by the United States District Court

for the District of Colorado. The parties have therefore consented to appellate

review by this Court.

Id. at 22-24, in Appellant’s App. at 289-91. The bankruptcy court did not

33

deny Gollehon a discharge under § 727(a)(6) because Florado abandoned that

argument at trial.

Turi v. Main St. Adoption Servs., LLP, 633 F.3d 496, 500-01 (6th Cir.

34

2011); John E. Burns Drilling Co. v. Central Bank of Denver, 739 F.2d 1489,

1491-92 (10th Cir. 1984) (citing Catlin v. United States, 324 U.S. 229, 236 (1945)

(“[D]enial of a motion to dismiss, even when the motion is made on jurisdictional

grounds, is not immediately reviewable” under predecessor to § 1291.)). See also

15A Charles Alan Wright et al., Fed. Prac. & Proc. Juris. §§ 3914.1 & 3914.6 (2d

ed. 2014).

Order Denying Dismissal at 6, in Appellant’s App. at 187.

35

28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.

36

BAP L.R. 8001-3 (now at 10th Cir. BAP L.R. 8005-1, effective Dec. 1, 2014).

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BAP Appeal No. 14-31 Docket No. 37 Filed: 04/17/2015 Page: 8 of 19
A decision is considered final “if it ‘ends the litigation on the merits and

leaves nothing for the court to do but execute the judgment.’” Here, the

37

bankruptcy court’s Order Denying Discharge terminated the adversary

proceeding, and therefore is final for purposes of review.

For purposes of standard of review, decisions by trial courts are

traditionally divided into three categories denominated: 1) questions of law,

which are reviewable de novo; 2) questions of fact, which are reviewable for clear

error; and 3) matters of discretion, which are reviewable for abuse of discretion.

38

The issues raised on appeal here are legal ones. De novo review requires an

independent determination of legal issues, giving no special weight to the

bankruptcy court’s decision.

39

III. ANALYSIS

Gollehon appeals the Order Denying Discharge, but the only error he

alleges is that the bankruptcy court did not dismiss the Complaint based on

Florado’s lack of capacity or authority to commence the adversary proceeding. In

a nutshell, Gollehon does not contest any of the bankruptcy court’s findings or

conclusions that he is not entitled to a discharge based on a wide range of

misconduct, but instead attempts to rehash the issue of Florado’s corporate

capacity to sue. Again, he argues that Florado did not have the requisite authority

under its Operating Agreement to bring the adversary proceeding. In response,

Florado initially contends that, for procedural reasons, Gollehon is barred from

appealing the bankruptcy court’s Order Denying Dismissal following trial and

final judgment. We agree with Florado’s contention and address it before turning

Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin

37

v. United States, 324 U.S. 229, 233 (1945)).

Pierce v. Underwood, 487 U.S. 552, 558 (1988); Fowler Bros. v. Young (In

38

re Young), 91 F.3d 1367, 1370 (10th Cir. 1996).

Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).

39

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BAP Appeal No. 14-31 Docket No. 37 Filed: 04/17/2015 Page: 9 of 19
to Gollehon’s argument on the merits.

A. Procedural Bar to Challenging Lack of Capacity on Appeal

Florado argues Gollehon’s Motion to Dismiss is moot and that he failed to

preserve the corporate authority defense for purposes of appeal. Specifically,

40

Florado asserts “[i]n the Tenth Circuit, denial of a Motion to Dismiss for Failure

to State a Claim or a Motion for Summary Judgment is not reviewable on appeal

if the opposing party prevails at trial.” As explained below, while Florado’s

41

assertion is not categorically true, we believe it is applicable here and yields the

right result in this case.

In Whalen v. Unit Rig, Inc. (“Whalen”), the Tenth Circuit addressed the

42

appealability of a trial court’s alleged erroneous denial of summary judgment

subsequent to trial. It held that when a trial court denies a motion for summary

judgment based on factual disputes, and final judgment is entered following a

trial, the proper redress is not an appeal of the denial of summary judgment via

final judgment. Rather, a party should file a motion for judgment as a matter of

43

law in the trial court and seek appellate review of the denial of that motion.

44

However, the Tenth Circuit then recognized an exception to the Whalen rule in

Haberman v. Hartford Insurance Group (“Haberman”).

45

In Haberman, the Tenth Circuit held that “when the material facts are not

in dispute and the denial of summary judgment is based on the interpretation of a

Appellee’s Answer Brief at 13.

40

Id.

41

974 F.2d 1248 (10th Cir. 1992).

42

Id. at 1250-51.

43

Id.

44

443 F.3d 1257 (10th Cir. 2006).

45

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BAP Appeal No. 14-31 Docket No. 37 Filed: 04/17/2015 Page: 10 of 19
purely legal question, such a decision is appealable after final judgment.”

46

The Tenth Circuit has confirmed its Haberman ruling in recent decisions, but

47

though it has been asked to do so, it has not extended the Haberman exception to

trial court orders denying motions to dismiss.

In ClearOne Communications, Inc. v. Biamp Systems (“ClearOne”), the

48

trial court denied defendant’s motion to dismiss plaintiff’s misappropriation of

trade secrets action for failure to state a claim. Defendant’s motion to dismiss

was based on both a factual dispute and a legal argument. The case proceeded to

trial and the jury rendered a verdict in favor of plaintiff. On appeal, defendant

argued, among other things, that the district court erred in denying its motion to

dismiss.

The Tenth Circuit indicated it had not previously addressed the

appealability of a denial of a motion to dismiss following trial, but pointed to its

ruling in Whalen in the summary judgment context. It then noted the Fifth Circuit

had addressed the precise issue in Bennett v. Pippin, and that it was persuaded

49

by its reasoning. The Tenth Circuit held that

as a general rule, a defendant may not, after a plaintiff has prevailed

at trial, appeal from the pretrial denial of a Rule 12(b)(6) motion to

dismiss, but must instead challenge the legal sufficiency of the

plaintiff’s claim through a motion for judgment as a matter of law.

50

In ClearOne, defendant had filed a motion for judgment as a matter of law.

However, the Tenth Circuit concluded the trial court’s denial of the motion to

Id. at 1264. Other circuits have recognized the same exception. See, e.g.,

46

Feld v. Feld, 688 F.3d 779, 781-82 (D.C. Cir. 2012).

Stewart v. Beach, 701 F.3d 1322, 1328-29 (10th Cir. 2012); Copar Pumice

47

Co. v. Morris, 639 F.3d 1025, 1031 (10th Cir. 2011).

653 F.3d 1163 (10th Cir. 2011).

48

74 F.3d 578 (5th Cir. 1996).

49

ClearOne, 653 F.3d at 1172.

50

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dismiss was not properly before the court for consideration on appeal because

defendant did not assert the order denying dismissal was error in its motion for

judgment as a matter of law and did not appeal the trial court’s denial of that

motion.

51

Nevertheless, on appeal defendant asserted it “should be allowed, post-trial,

to appeal the pretrial denial of a Rule 12(b)(6) motion if the denial was based on

the resolution of a purely legal question.” In other words, defendant argued the

52

Tenth Circuit should create an exception for motions to dismiss like it did in

Haberman in the summary judgment context. But the Tenth Circuit declined to

address the argument because the district court’s “denial of [defendant’s] motion

to dismiss was based largely on its conclusion that additional factual development

was necessary, and [defendant] does not seek in this appeal to challenge the sole

legal conclusion reached by the district court in denying the motion to dismiss.”

53

In the case on appeal here, Gollehon did not move for judgment as a matter

of law at the close of Florado’s case based on lack of capacity or authority, and

nothing in the record suggests that he offered any evidence on the issue or

otherwise raised it at trial. In addition, Gollehon did not assert the defense in his

written closing argument, and made no post-trial motion of any kind. Now that

54

the bankruptcy court has denied Gollehon a discharge on numerous grounds

following a three-day trial, Gollehon wants another bite at the “capacity” apple.

As the Tenth Circuit has repeatedly explained, “[S]ummary judgment was not

intended to be a bomb planted within the litigation at its early stages and

Id.

51

Id.

52

Id. at 1172-73.

53

Defendant Ronald D. Gollehon’s Written Closing Argument, in Appellee’s

54

App. at 349.

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exploded on appeal.” This reasoning applies equally, if not more so, to

55

Gollehon’s Motion to Dismiss. Perhaps at some point in the future, the Tenth

Circuit will definitively rule that in limited instances a denial of a motion to

dismiss is appealable following trial and final judgment. But until such time, we

decline to push that boundary, especially given the facts of this case.

Even if there were an established exception to the post-trial reviewability

rule for motions to dismiss involving “purely legal issues,” this case would not

fall in that category. Although the bankruptcy court’s Order Denying Dismissal

is based primarily on the legal rules of prior adjudication, the basis of Gollehon’s

Motion to Dismiss was not a purely legal one. Gollehon contended Florado did

not have capacity to sue because it lacked requisite consent under its Operating

Agreement. That contention first involves interpretation of the Operating

Agreement to determine what consent was required, followed by factual

development regarding actual consent given. As explained by the United States

Supreme Court, cases fitting the “purely legal issue” criterion “typically involve

disputes about the substance and clarity of pre-existing law.” Gollehon’s

56

Motion to Dismiss simply does not fall within this narrow category.

Further, apart from whether Gollehon preserved the right to appeal denial

of his Motion to Dismiss, he waived any other challenge to capacity or authority

by not raising it at trial. Lack of capacity or authority is a defense the party

asserting it must raise; it is analogous to an affirmative defense. An affirmative

57

ClearOne, 653 F.3d at 1171-72 (quoting Whalen v. Unit Rig, Inc., 974 F.2d

55

1248, 1251 (10th Cir. 1992)).

Ortiz. v. Jordan, 562 U.S. 180, 190 (2011).

56

5A Charles Alan Wright et al., Fed. Prac. & Proc. Civ. § 1295 (3d ed.

57

2014).

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defense is not preserved if the defendant never mentions it at trial.

58

Gollehon argues that lack of capacity or authority attacks plaintiff’s

standing and implicates the bankruptcy court’s subject matter jurisdiction, an

issue Gollehon can raise at anytime. We disagree. Capacity or authority to sue

based on corporate governance issues is not jurisdictional. Like any defense, an

59

ultra vires challenge must be raised and preserved or it is waived. Further, when

the defense is raised in the context of a motion to dismiss, Rule 12(b)(6), not

12(b)(1), applies.

Under Tenth Circuit law, no grounds exist to permit Gollehon to

successfully appeal the bankruptcy court’s ruling on Florado’s capacity or

authority to sue.

B. Action on a Judgment

Even were we to conclude the bankruptcy court’s Order Denying Dismissal

is reviewable at this stage despite any action on Gollehon’s part to preserve the

error, we reject the merits of his argument on appeal. We view Gollehon’s

challenge to Florado’s capacity in this adversary proceeding as an impermissible

collateral attack on the Judgment.

In its Order Denying Dismissal, the bankruptcy court ruled:

Cavic v. Pioneer Astro Indus., Inc., 825 F.2d 1421, 1425 (10th Cir. 1987)

58

(concluding appellant did not sufficiently preserve affirmative defense where

defense was listed in pretrial order but was not argued or mentioned by appellant

at trial). See also United States v. Rogers, 118 F.3d 466, 474 (6th Cir. 1997)

(defendant failed to preserve defense where he failed to raise the argument at trial

despite having raised it in pretrial motion to dismiss); Kraushaar v. Flanigan, 45

F.3d 1040, 1054 n.7 (7th Cir. 1995) (although issue was raised generally in final

pre-trial order, appellant waived the argument by not arguing the point at trial).

See Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 193-94 (2d Cir.

59

2003) (Rule 17 relates only to determination of proper parties and capacity to sue

and does not affect jurisdiction); Summers v. Interstate Tractor & Equip. Co., 466

F.2d 42, 50 (9th Cir. 1972) (question of litigant’s capacity or right to sue or to be

sued generally does not affect subject matter jurisdiction); Davis v. Lifetime

Capital, Inc., 560 F. App’x 477, 478 n.2 (6th Cir. 2014) (capacity is generally

considered an affirmative defense, not a jurisdictional issue).

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Among the arguments raised by Florado in its Response [to the

Motion to Dismiss], the most compelling and, in the Court’s view,

dispositive, is claim preclusion, otherwise referred to by the parties

as res judicata. Florado argues Gollehon is precluded from asserting

any argument it lacks the authority to sue Gollehon based on his

waiver of the argument in the underlying Arbitration. The Court

agrees.

60

Res judicata refers to case-law developed principles regarding former

adjudication. The purposes underlying these principles serve both private and

public interests by requiring disputes between parties and their privies to be

resolved within the context of a single litigation. Thus, the United States

61

Supreme Court has observed that res judicata “has the dual purpose of protecting

litigants from the burden of relitigating an identical issue with the same party or

his privy and of promoting judicial economy by preventing needless litigation.”

62

“Res judicata ensures the finality of decisions” and “prevents litigation of all

grounds for, or defenses to, recovery that were previously available to the parties,

regardless of whether they were asserted or determined in the prior proceeding.”

63

Colorado has not specifically adopted the Restatement (Second) of

Judgments, but Colorado courts frequently cite to its provisions. Section 18 of

64

the Restatement addresses the question presented in this appeal. It provides:

When a valid and final personal judgment is rendered in favor of the

plaintiff:

Order Denying Dismissal at 5, in Appellants’ App. at 186 (footnote

60

omitted).

See 18 Charles Alan Wright et al., Fed. Prac. & Proc. Juris. § 4403 (2d ed.

61

2014).

Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979).

62

Brown v. Felsen, 442 U.S. 127, 131 (1979).

63

See, e.g., Stanton v. Schultz, 222 P.3d 303, 306 (Colo. 2010) (citing

64

Restatement (Second) of Judgments § 27); Michaelson v. Michaelson, 884 P.2d

695, 701 & n.7 (Colo. 1994)(citing Restatement (Second) of Judgments § 27);

Cont’l W. Ins. Co. v. Heritage Estates Mut. Hous. Ass’n, 77 P.3d 911, 916 (Colo.

App. 2003) (citing Restatement (Second) of Judgments § 18).

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(1) The plaintiff cannot thereafter maintain an action on

the original claim or any part thereof, although he may

be able to maintain an action upon the judgment; and

(2) In an action upon the judgment, the defendant cannot

avail himself of defenses he might have interposed, or

did interpose, in the first action.

65

As a prepetition judgment creditor, Florado is entitled to object to Gollehon’s

discharge pursuant to § 727(c)(1). Florado has done so in an effort to prevent its

Judgment against Gollehon from becoming meaningless. In this regard, we view

the adversary proceeding as in the nature of “an action upon the Judgment.”

Several other courts have also equated bankruptcy dischargeability

proceedings with an action on a judgment. In National Union Fire Insurance

Company v. Owenby (In re Owenby), a creditor obtained a default judgment

66

against debtor prior to debtor filing bankruptcy. Creditor brought an adversary

proceeding in debtor’s case and the bankruptcy court held creditor’s debt to be

nondischargeable pursuant to § 523(a)(2)(B). The district court affirmed. Debtor

appealed the district court’s order and the Ninth Circuit affirmed, opining that the

adversary action in bankruptcy was a timely action on the earlier judgment that

commenced its own ten-year enforcement period. According to the Ninth

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Circuit,

An action on a judgment is the “customary way” to secure

enforcement of an out of state judgment. The doctrine that a

judgment creates it own cause of action is an entirely practical legal

device, the purpose of which is to facilitate the goal of securing

satisfaction of the original cause of action. In combination with the

doctrine of “merger,” whereby a cause of action is said to merge with

a judgment upon it such that only the judgment survives as a basis

for further litigation, the doctrine also provides a bar against attempts

Restatement (Second) of Judgments § 18 (1982).

65

42 F. App’x 59 (9th Cir. 2002).

66

Id. at 63.

67

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to opportunistically relitigate the same cause of action.”

68

Clearly, in the § 727 proceeding on appeal here, Florado is attempting to secure

satisfaction of the Judgment it obtained in the original cause of action, and

Gollehon should not be allowed to opportunistically relitigate matters already

concluded.

In Federal Trade Commission v. Wright (In re Wright), a Connecticut

69

bankruptcy court reached a similar conclusion regarding the nature of

dischargeability proceedings for res judicata purposes. The Wright court opined

that in the limited context of § 523(a)(7), res judicata may operate to require

summary judgment in favor of a governmental unit which obtained a prior

non-bankruptcy monetary judgment for civil penalties even if that judgment was

by default. It further stated, “because the Dischargeability Action can be

70

viewed as the ‘same claim’ as the District Court Action, the Defendant would

appear to be precluded under principles of res judicata from presently offering

any defenses which were available to him in the District Court Action.” To

71

support its reasoning, the Wright court relied on Sure-Snap Corp. v. State Street

Bank and Trust Co., a Second Circuit decision regarding res judicata in a

72

different bankruptcy context.

In Sure-Snap, a debtor-borrower filed for Chapter 11 relief and a plan of

reorganization was confirmed. Subsequent to confirmation, the debtor brought an

action in federal district court against lenders who had asserted claims in the

bankruptcy case. The district court determined that debtor’s failure to raise the

Id. (citations omitted).

68

194 B.R. 715 (Bankr. D. Conn. 1996).

69

Id. at 717.

70

Id. at 718.

71

948 F.2d 869 (2d Cir. 1991).

72

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lender liability claims during the bankruptcy barred it from litigating them in a

separate proceeding. The Second Circuit affirmed, holding that the bankruptcy

73

court’s order confirming the plan of reorganization was entitled to res judicata

effect. The Second Circuit stated that the test for deciding “sameness of claims”

requires that the same transaction, evidence, and factual issues be involved.

Further, the Second Circuit opined “[a]lso dispositive to a finding of preclusive

effect, is whether an independent judgment in a separate proceeding would

‘impair or destroy rights or interests established by the judgment entered in the

first action.’”

74

The bankruptcy court in Wright cited Sure-Snap, stating “because the result

of dischargeability litigation determines the continued enforceability of the prior

non-bankruptcy judgment, a judgment of dischargeability holds the prospect of

‘impair[ing] or destroy[ing] rights or interests established by the

[non-bankruptcy] judgment.’” Therefore, the Wright court concluded res

75

judicata principles would be applicable because it viewed the dischargeability

action as the same claim in the underlying district court action. Similarly, the

adversary litigation here involves the same transactions, evidence, and factual

issues as the state court action, and impacts the future enforceability of the prior

non-bankruptcy Judgment. The adversary is an action on the Judgment that seeks

to prevent a discharge order from destroying the rights established thereunder. As

a result, we believe the bankruptcy court correctly concluded Gollehon should not

be permitted to challenge Florado’s capacity in this adversary proceeding.

Id. at 874-75.

73

Id. at 874 (quoting Herendeen v. Champion Int’l Corp., 525 F.2d 130, 133

74

(2d Cir. 1975)).

In re Wright, 194 B.R. at 718.

75

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IV. CONCLUSION

Under Tenth Circuit law, no grounds exist to permit Gollehon to

successfully appeal the bankruptcy court’s denial of his Motion to Dismiss

following final judgment when he has done nothing to preserve that alleged error.

After a three-day trial, the bankruptcy court determined, on numerous grounds,

that Gollehon did not qualify as an honest but unfortunate debtor eligible for a

discharge and fresh start. To allow him to avoid this result by now resuscitating

his capacity argument would be inequitable.

Even if we thought the Order Denying Dismissal appealable, Gollehon’s

revival of his capacity argument would be problematic because his Motion to

Dismiss did not involve only purely legal issues. Further, we view Gollehon’s

dispute of capacity as an impermissible collateral attack on the Judgment

prohibited by the Restatement of Judgments § 18 because Florado’s adversary

litigation is in the nature of an action on a judgment. Therefore, the bankruptcy

court’s Order Denying Discharge is hereby affirmed.

JACOBVITZ, Bankruptcy Judge, concurring in part.

I concur with my colleagues except as to their conclusion that Gollehon’s

challenge to capacity or authority to sue was barred under the doctrine of res

judicata or claim preclusion.

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