Opinion ID: 2636667
Heading Depth: 2
Heading Rank: 2

Heading: claim preclusion bars the division from pursuing the administrative action against mack

Text: ¶ 26 Whether res judicata, and more specifically claim preclusion, bars an action presents a question of law that we review for correctness. Macris & Assocs., Inc. v. Neways, Inc., 2000 UT 93, ¶ 17, 16 P.3d 1214. In this case, the district court correctly held that claim preclusion barred the Division's administrative action to suspend Mack's license because the Division could have brought this claim in the district court action. Because we hold that claim preclusion bars the Division's administrative action, we do not reach the Division's issue preclusion argument. ¶ 27 Under the Utah Uniform Securities Act the Division has three avenues for enforcing the provisions of the Act: equitable actions, administrative proceedings, and criminal actions. At issue in this case are the first two forms of enforcement. Utah Code section 61-1-20 allows the Division to use adjudicative procedures in the administrative forum to petition the Division of Securities director to enter cease and desist orders, impose fines, and bar persons from the securities industry in the state of Utah. Utah Code Ann. § 61-1-20(1) (2006). Under the same section, the Division may also bring an action in district court to enforce compliance with the Act or any rule made pursuant to the Act. Id. § 61-1-20(2). Subsection 2 grants the district court jurisdiction to issue equitable relief, order disgorgement and rescission, impose fines, or enter any other relief the court considers just. Id. Additionally, Utah Code section 61-1-6 allows the director through administrative proceedings to sanction persons registered with the Division of Securities by suspending and revoking securities licenses, barring a person from the securities industry in Utah, restricting the responsibilities of registered persons, and imposing fines. Id. § 61-1-6(1) (2006 & Supp.2008). [3] These sanctions are allowed for enumerated acts such as failing to supervise agents or employees. Id. § 61-1-6(2)(j). Section 61-1-6.5 also gives the courts jurisdiction to order the Division to withhold, suspend, restrict, or reinstate the use of securities licenses issued under the Act. Id. § 61-1-6.5 (2006). ¶ 28 In this case, the Division first pursued a civil action against Mack, requesting the district court to enter a judgment finding that Mack violated the Utah Uniform Securities Act, permanently enjoining Mack from violating the Act, ordering restitution, and imposing a fine based on the Division's allegation that Mack violated the Act's prohibition of fraud by failing to supervise his employees. The district court denied this relief but invited the Division to amend its complaint to bring any other claims it could based on the same facts relating to the licensure of Mack. The Division declined to do so even though section 61-1-6.5 gives the district court clear authority to order the revocation of Mack's license. The Division chose instead to employ the administrative forum and requested the director in the administrative proceedings to revoke Mack's license, to bar him from the securities industry in Utah, and to impose a fine. Mack argues that this administrative action is barred by res judicata. We agree. ¶ 29 The doctrine of res judicata embraces two distinct branches: claim preclusion and issue preclusion. Macris & Assocs., 2000 UT 93, ¶ 19, 16 P.3d 1214. [C]laim preclusion corresponds to causes of action[;] issue preclusion corresponds to the facts and issues underlying causes of action. Oman v. Davis Sch. Dist., 2008 UT 70, ¶ 31, 194 P.3d 956. Claim preclusion `is premised on the principle that a controversy should be adjudicated only once.' Nebeker v. State Tax Comm'n, 2001 UT 74, ¶ 23, 34 P.3d 180 (quoting Salt Lake Citizens Cong. v. Mountain States Tel. & Tel. Co., 846 P.2d 1245, 1251 (Utah 1992)). Whether a claim is precluded from relitigation depends on a three-part test. 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 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. Snyder v. Murray City Corp., 2003 UT 13, ¶ 34, 73 P.3d 325 (quoting Miller v. USAA Cas. Ins. Co., 2002 UT 6, ¶ 58, 44 P.3d 663). Here the first and third elements are easily met. Both actions involve the same parties-the Division and Mr. Mack. Further, the district court action, which was resolved under Utah Rule of Civil Procedure 12(b)(6), resulted in a final judgment on the merits. See Fed. Deposit Ins. Corp. v. Paul, 735 F.Supp. 375, 380 (D.Utah 1990) (`A motion to dismiss for failure to state a claim upon which relief can be granted ... [is a] dismissal... on the merits and is accorded res judicata effect.' (alteration in original)(quoting 2A James Wm. Moore et al., Moore's Federal Practice § 12.07 (2d ed. Supp. 1987))). Therefore, we focus our analysis on whether the claims in the administrative action were, or could have been, presented in the first action, the district court action. We hold that they could. ¶ 30 Claims or causes of action are the same as those brought or that could have been brought in the first action if they arise from the same operative facts, or in other words from the same transaction. See Restatement (Second) of Judgments § 24 (1982). Previously we have held that two causes of action are the same if they rest on the same state of facts, and the evidence necessary to sustain the two causes of action is of the same kind or character. Schaer v. State, 657 P.2d 1337, 1340 (Utah 1983). More recently, however, we have moved toward the transactional theory of claim preclusion espoused by the Restatement (Second). For example, in Burnett v. Utah Power & Light Co., we noted that [r]ather than resting on the specific legal theory invoked, res judicata generally is thought to turn on the essential similarity of the underlying events giving rise to the various legal claims. 797 P.2d 1096, 1098 (Utah 1990) (quoting Davis v. U.S. Steel Supply, 688 F.2d 166, 171 (3d Cir.1982) (en banc)). See also Swainston v. Intermountain Health Care, Inc., 766 P.2d 1059, 1061 (Utah 1988) (A claim or cause of action is `the aggregate of operative facts which give rise to a right enforceable in the courts.' (quoting Original Ballet Russe v. Ballet Theatre, 133 F.2d 187, 189 (2d Cir.1943))). While on in some cases we have still suggested that the evidence needed to sustain the claims must be the same, this requirement was not dispositive for these cases. For example, in Macris & Assocs., Inc., we held that a claim based on the Utah Fraudulent Transfer Act was not the same as a claim for breach of contract because they did not involve the same facts and different evidence would be required to sustain each claim. 2000 UT 93, ¶¶ 29-31, 16 P.3d 1214. We found that the claims were based on very different facts; the first claim was based on a distributorship agreement that was allegedly breached in 1991, and the second claim was based on the creation of a new company and a transfer of assets to this company, all of which occurred in 1992. Critical to our holding was the circumstance that the two claims arose out of different transactions. Id. Thus, if a party raises claims based on the same operative facts or the same transaction, it may be precluded if the other elements of claim preclusion are met. There are, however, exceptions to this rule, and the Division argues that its administrative claims fall within the exceptions. ¶ 31 The Division argues that it could not have brought its claim for negligent supervision in the district court action, even if it is the same claim under the operative fact test, because the district court did not have subject matter jurisdiction. According to the Division the district court does not have subject matter jurisdiction over revoking or suspending securities licenses because the legislature provided exclusive fora for specific claims under the Securities Act. ¶ 32 A claim is not the same claim, in terms of claim preclusion, if it could not have been brought in the first action, and, of course, a party may not bring a claim in a first action if the court lacks subject matter jurisdiction. SMP, Inc. v. Kirkman, 843 P.2d 531, 533 (Utah Ct.App.1992)(It is axiomatic that before we will apply res judicata to the prior adjudication of a claim, the prior adjudicating tribunal must have had subject matter jurisdiction to adjudicate the claim on its merits.); Restatement (Second) of Judgments § 26(1)(c) (explaining that claim preclusion does not apply when [t]he plaintiff was unable to rely on a certain theory of the case or to seek a certain remedy or form of relief in the first action because of the limitations on the subject matter jurisdiction of the courts). For this exception to apply, one of the fora used must have exclusive jurisdiction, not merely limited jurisdiction, over the claims alleged to be barred. Compare Restatement (Second) of Judgments § 26 cmt. c(1), with id. § 24 cmt. g. ¶ 33 A district court has subject matter jurisdiction over a legal claim unless adjudicative authority for that claim is specifically delegated to an administrative agency. District courts have general jurisdiction, which provides them with broad adjudicative authority. Utah Code Ann. § 78A-5-101 and -102 (2008). Only in instances where the legislature grants exclusive jurisdiction to an administrative agency, or otherwise explicitly restricts the courts' jurisdiction, does the district court lack subject matter jurisdiction. See, e.g., Beaver County v. Qwest, Inc., 2001 UT 81, ¶¶ 10-11, 31 P.3d 1147 (holding that the legislature granted exclusive authority over ratemaking to the Public Service Commission). For example, the Workers' Compensation Act gives the Labor Commission exclusive authority over employees' claims against their employers for injuries sustained in the workplace. Utah Code Ann. § 34A-2-105 (Supp.2008). Agencies, in contrast, are limited to the adjudicative authority granted by the legislature. SMP, Inc., 843 P.2d at 533 (As a statutorily created agency, the Industrial Commission has only those powers expressly or impliedly granted by statute.) For this reason, it is more likely that an administrative agency's subject matter jurisdiction will be limited than a district court's. Id. ([A]gencies typically have limited subject matter jurisdiction.); see also id. at 533-34 (holding that the Industrial Commission only had subject matter jurisdiction over claims under the payment of wages statute and not contract claims); Nebeker, 2001 UT 74, ¶ 23, 34 P.3d 180 (holding that the Tax Commission did not have subject matter jurisdiction to resolve a constitutional challenge). In some instances, however, such as in the Securities Act, the legislature creates a statutory scheme that contemplates proceedings in different tribunals affording possibly different remedies. In such statutory schemes it is not immediately apparent whether the legislature intended to create remedies exclusive to a particular forum, thereby removing subject matter jurisdiction from the other forum. Therefore, we carefully analyze the language and structure of the Act to determine the legislature's intent. State v. Schofield, 2002 UT 132, ¶ 8, 63 P.3d 667. ¶ 34 Reviewing both the grant of authority to the administrative agency and the district court, and also the Securities Act as a whole, we conclude that the remedies provided therein are not exclusive to one forum and therefore the district court did not lack subject matter jurisdiction to hear the licensing issues. The Division argues that the district court does not have jurisdiction because negligent supervision is addressed under the section providing the director with authority to suspend or revoke securities licenses. See Utah Code Ann. § 61-1-6(j). However, the negligent supervision subsection's placement in the statute does not grant the administrative agency with exclusive authority over such issues. Instead, the statute also grants the district court with broad authority, allowing the court to revoke or suspend a license and to prohibit any securities practices through an order to the Division, Utah Code Ann. §§ 61-1-6(2)(d) and -6.5, or enter any other relief the court considers just in order to enforce compliance with [the Securities Act] or any rule or order under [the Securities Act]. Id. § 61-1-20(2)(viii) (2006). This power is granted in addition to the sanction authority given to the director in section 61-1-6. Id. § 61-1-20. Thus, with these overlapping grants of authority, the Securities Act provides concurrent jurisdiction in the district court and the Division director to enforce the Securities Act. Because the Division does not have exclusive authority to revoke or suspend securities licenses for negligent supervision, it could have brought the licensing issues related to Mr. Mack's supervision of his employee in the district court action, and it is now barred from doing so in an administrative action.