Opinion ID: 2602290
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: ¶ 17 The two issues before the court on appeal are whether the district court erred in concluding that Press's claims against the remaining defendants are barred under the doctrine of res judicata and in dismissing Press's claim for breach of contract with respect to the JAFs.
¶ 18 Press claims the district court erred in concluding that its remaining causes of action are barred by the claim preclusion branch of res judicata. According to Press, the requirements for claim preclusion have not been met. First, Press argues it is not precluded from claiming defendants are not MBI's privies. Next, Press argues that ten of the claims set forth in this action involve acts not directly involving MBI. Finally, Press claims the district court erred in concluding that the notice of disallowance in the C-36 proceeding constituted litigation of all the claims on the merits because (1) the claims were not litigated before a court, (2) the C-36 Court lacked jurisdiction to review its claims, and (3) the Third Plan of Arrangement did not litigate a contract between MBI and its creditors. ¶ 19 The ultimate determination of whether res judicata bars an action is a question of law, . . . [which] we . . . review. . . for correctness. Macris & Assocs. v. Neways, 2000 UT 93, ¶ 17, 16 P.3d 1214. We have outlined the law relating to the doctrine of res judicata as follows: The doctrine of res judicata embraces two distinct branches: claim preclusion and issue preclusion. Claim preclusion involves the same parties or their privies and also the same cause of action, `and this precludes the relitigation of all issues that could have been litigated as well as those that were, in fact, litigated in the prior action.' Issue preclusion [also known as collateral estoppel], on the other hand, `arises from a different cause of action and prevents parties or their privies from relitigating facts and issues in a second suit that were fully litigated in the first suit.'(Citation omitted). Therefore, . . . different rules govern each branch. Id. at ¶ 19, 16 P.3d 1214 (emphasis added) (citations omitted). For claim preclusion to apply, three requirements must be met: First, both cases must involve the same parties or their privies. Second, the claim that is alleged to be barred must have been presented in the first suit or must be one that could and should have been raised in the first action. Third, the first suit must have resulted in a final judgment on the merits. Id. at ¶ 20, 16 P.3d 1214 (quoting Madsen v. Borthick, 769 P.2d 245, 247 (Utah 1988)). We address each of these requirements in turn as they pertain to the facts in this case.
¶ 20 The legal definition of a person in privity with another, is a person so identified in interest with another that he represents the same legal right. Searle Bros. v. Searle, 588 P.2d 689, 691 (Utah 1978). Thus, privity depends mostly [on the parties'] relationship to the subject matter of the litigation. Missouri Mexican Prods., Inc. v. Dunafon, 873 S.W.2d 282, 286 (Mo.Ct. App.1994). Following this rationale, final adjudication of plaintiff's claims bars subsequent litigation concerning the same subject matter against officers or owners of a closely held corporation, partners, co-conspirators, agents, alter egos or other parties with similar legal interests. See Lesser v. Gray, 236 U.S. 70, 74, 35 S.Ct. 227, 59 L.Ed. 471 (1915) (disallowance of a bankruptcy claim against bankrupt partnership was res judicata in subsequent lawsuit against individual partner); see also Alman v. Danin, 801 F.2d 1, 4 (1st Cir.1986) (holding individual defendants, who were alter egos of corporation, liable based on privity and judgment against corporation); Circle v. Jim Walter Homes, Inc., 654 F.2d 688, 692 (10th Cir.1981) (stating that subsidiary in privity with parent and sister corporation); Hellman v. Hoenig, 989 F.Supp. 532, 536-38 (S.D.N.Y.1998) (holding that privity exists between corporate defendant and officers and directors). ¶ 21 It is undisputed that the corporate defendants in this case are affiliates, subsidiaries, or parent companies of MBI, that Kalenuik, Bolduc, and Jurak own and direct all the Matol entities, and that Garrett organized MCC. Thus, the corporate defendants are sister corporations of MBI and the individual defendants are principals, officers and employees of MBI. In these respective capacities, defendants defended MBI in the C-36 proceeding. In addition, the causes of action in this case stem from the same alleged conduct, obligations, and legal theory as the claims against MBI in the C-36 proceeding. Thus, defendants' legal rights and interests are identical with those of MBI, meeting the legal definition of a person in privity with another as set forth in Searle Brothers. ¶ 22 In addition, Press has argued throughout this litigation that defendants are so identified in interest with each other that their legal rights have no separate legal existence. In fact, in its brief to this court, Press admits that [d]efendants' joint liability . . . is based, in part, on a corporate disregard and piercing the corporate veil theory that the three individual owners operated all of the various Matol entities as a partnership, creating new corporations and changing their cash flow at will. Thus, Press's attempt to retract its previous allegations of privity in an effort to prevent dismissal of this case seems disingenuous at best. See Futura Dev. Corp. v. Centex Corp., 761 F.2d 33, 43-44 (1st Cir.1985) (stating that plaintiff cannot . . . claim liability on the basis of an alter ego theory while at the same time denying that the defendants have sufficient identity of interest). Based on the foregoing, we conclude the district court's determination of privity in this case is correct, and agree that given the circumstances, [p]laintiff is precluded from claiming that [d]efendants are not in privity with one another.
¶ 23 According to the Protocol between the C-36 Court and the Bankruptcy Court, timely filings in either proceeding would be deemed filed in both proceedings. Press filed a timely notice of claim in the Bankruptcy Court proffering the entire record in this case as its evidence. Thus, the interim manager reviewed the entire record in this case. Essentially, the claims submitted in the C-36 proceeding were legally and factually identical to the claims asserted in this litigation; they espouse the same theories, elements, and factual determinations. This is particularly true in light of the fact that the notice of disallowance addresses all of Press's claims in this case. In fact, the interim manager's rationale for disallowing Press's claims in the C-36 proceeding is similar to the basis used by the district court in granting defendants' motions for summary judgment. Therefore, the district court properly held that Press's claims in this case were raised in the C-36 proceeding.
¶ 24 Under Utah case law, [a]n arrangement confirmed by a bankruptcy court has the effect of a judgment entered by a federal district court . . . [and] is final for purposes of res judicata until reversed on appeal or modified or set aside in the court of rendition. Copper State Thrift & Loan, 735 P.2d at 390 (citations omitted). Here, upon receipt of the notice of disallowance, Press sought to have its claims reviewed by the Bankruptcy Court, arguing among other things, that the Canadian court lacked jurisdiction. [12] The Bankruptcy Court refused Press's request. On the contrary, it granted MBI's Motion to Convert, approved the Third Plan of Arrangement, and granted MBI's request for injunctive relief, essentially affirming the notice of disallowance. Nevertheless, it did allow Press an opportunity to appeal the disallowance before the C-36 Court. Press chose not to pursue its appeal of right in the C-36 proceeding. Rather, it sought review of the Bankruptcy Court's ruling. The U.S. District Court of Nevada affirmed the ruling of the Bankruptcy Court, holding that the Bankruptcy Court had the authority to approve the Third Plan of Arrangement and to enjoin the state proceedings pursuant to 11 U.S.C. § 304(b) and (c)(3), and concluding that Press cannot show particularized harm if compelled to litigate in Canada. Given that the judgment of the Bankruptcy Court was upheld on appeal, there is no question as to its finality. Thus, the district court was correct in concluding that the adjudication of Press's claims in the C-36 proceeding was a final judgment on the merits. [13]