Court Opinion

ID: 2737466
Source: CourtListenerOpinion
Date Created: 2014-09-26 18:01:55.374571+00
Date Added: 2024-06-11T10:57:47.189034
License: Public Domain

REL: 09/26/2014

Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter. Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.

          SUPREME COURT OF ALABAMA
                              SPECIAL TERM, 2014
                             ____________________

                                    1121140
                             ____________________

                             Ex parte Tommy Sundy

                       PETITION FOR WRIT OF MANDAMUS

                         (In re: API Holdings, LLC

                                           v.

                    Frost Cummings Tidwell Group, LLC)

                  (Jefferson Circuit Court, CV-12-902502)

MURDOCK, Justice.

      Tommy Sundy petitions this Court for a writ of mandamus

directing the Jefferson Circuit Court to dismiss third-party
1121140

claims asserted against him by the Frost Cummings Tidwell

Group, LLC ("FCT"), an accounting firm. We deny the petition.

                   I.    Facts and Procedural History

    In June 2005, Adams Produce Company, Inc. ("APCI"),

purchased Crestview Produce of Destin, Inc., from Sundy.                 As

part of the transaction, APCI and Sundy executed a promissory

note in the amount of $850,000.                Sundy became an employee of

APCI.     FCT alleges that, based on representations from APCI

and Sundy, certain budget and bonus projections were set for

APCI, but those goals were not met.                Because of the failure to

meet those projections, Sundy was not entitled to bonuses that

had been paid to him throughout 2009.                 With the alleged help

and direction of FCT, APCI recharacterized the bonuses as

repayments    of        principal   on       the   promissory   note.   The

nonpayment of certain amounts to Sundy in the context of this

recharacterization had the effect of increasing APCI's income

and decreasing its indebtedness.               APCI also allegedly entered

into an oral, undocumented agreement with Sundy stipulating

that it would make him whole in future years for the forfeited

bonus payments.

                                         2
1121140

    In 2009, APCI's shareholders decided to sell the company

to API Holdings, LLC.    One step in that transaction involved

APCI's creating Adams Produce Company, LLC ("APC").    Another

step in the transaction involved APCI's retaining FCT in March

2010 to perform an audit and to make a report concerning

APCI's 2009 financial statements   ("the audit report").   FCT

completed the audit and submitted the audit report to APCI in

September 2010.1 FCT admits in its third-party complaint that

it investigated the recharacterization of bonuses paid to

Sundy and that it confirmed in the audit report that the

recharacterization was correct.    FCT denies that it had any

knowledge of the side agreement between APCI and Sundy to

reimburse him for the forfeited bonuses in future years.

    Pursuant to an "Asset Contribution Agreement" executed on

September 3, 2010, APCI transferred all of its assets and

liabilities to APC.     On the same day, API Holdings entered

into a "Membership Interest Purchase Agreement" pursuant to

which API Holdings purchased all, or a controlling part of,

the membership interests in APC for a total purchase price of

    1
     FCT also performed an audit for APC the following year
for the 2010 fiscal year, and its report for that audit
apparently contained the same recharacterization of the
bonuses, affecting APC's financial outlook.
                               3
1121140

$20,490,000. In the purchase agreement, API Holdings received

assurances that all aspects of APC's financial condition had

been disclosed to it through the audit report submitted by

FCT.

       API Holdings alleges that, following its purchase of APC,

it discovered that, contrary to representations made by FCT in

the audit report, APCI's financial statements were fraudulent,

causing API Holdings to believe that APC was worth more than

it actually was.

       On August 9, 2012, API Holdings sued FCT in the Jefferson

Circuit Court asserting claims of negligent misrepresentation,

auditing malpractice, fraud, and other claims of professional

malfeasance.     In general, API Holdings alleged that it had

relied upon the audit report when it agreed to purchase APC

and when it agreed upon the purchase price. Among several

other claims, API Holdings alleged that FCT had failed to

uncover misrepresentations by Sundy and APCI and that FCT had

acted fraudulently in confirming the recharacterization of

Sundy's bonuses as payments on principal of the promissory

note.

                                4
1121140

      On April 27, 2012, APC filed for Chapter 11 bankruptcy

protection in the United States Bankruptcy Court for the

Northern District of Alabama ("the bankruptcy court").          On

October 19, 2012, APC filed an adversarial complaint in the

bankruptcy court against FCT, alleging that FCT's audit work

had painted a false financial picture of APC upon which APC

had relied in continuing to operate its business even after

reaching the point of insolvency.2      APC alleged that it had

continued to operate past the point of insolvency and had

incurred additional debt that it otherwise would not have

incurred but for its reliance upon representations provided by

FCT in the audit report (i.e., the report applicable to 2009)

and in the similar report prepared by FCT with respect to

APC's 2010 fiscal-year activities.     Specifically, APC alleged

that the audit reports indicated that APC's cash position was

more favorable than it actually was.

      On March 18, 2013, FCT filed a third-party complaint in

the   bankruptcy   court   against   Sundy   and   others.   FCT's

complaint alleged various theories under Alabama law as bases

      2
     APC included allegations regarding FCT's audit work for
fiscal year 2010 because, according to its complaint, "[t]he
2010 Audit Report was based, in part, on the 2009 Financial
Statements and the 2009 Audit Report." See supra note 1.
                                5
1121140

for FCT to     "recover over" against Sundy.              Those claims, as

contemplated by Rule 14(a)(1), Fed. R. Civ. P., are "for all

or part of the [plaintiff's] claim against [the third-party

plaintiff]," i.e., APC's claims against FCT (for the injury

suffered by APC in incurring additional debt and eventually

suffering insolvency).

       On March 21, 2013, three days after filing its third-

party complaint in the federal action in the bankruptcy court,

FCT filed a third-party complaint against Sundy and others in

the Jefferson Circuit Court case filed by API Holdings.

Again, as contemplated by Rule 14(a), Ala. R. Civ. P., FCT

filed its third-party claims in the Jefferson Circuit Court

action for the purpose of recovering from Sundy "for all or

part    of   the   plaintiff's    claim        against    the   third-party

plaintiff" in that case, i.e., API Holdings' claims against

FCT (for the investment losses suffered by API Holdings

following its purchases of APC).              Of course, in the case of

the Jefferson Circuit Court action, the plaintiff is API

Holdings,    not   APC,   and    the       claims   it   asserted   for   its

investment losses were, of course, not the same as the claims

                                       6
1121140

held by APC and asserted by APC as the plaintiff in the

federal action in the bankruptcy court.

    Sundy subsequently filed in the Jefferson Circuit Court

a motion to dismiss FCT's third-party complaint in that case

on the basis of § 6-5-440, Ala. Code 1975, Alabama's abatement

statute.    Following the submission of arguments and a hearing

on the motion, the circuit court denied the motion on June 7,

2013.     Sundy timely filed a petition for a writ of mandamus

seeking to have this Court direct the circuit court to vacate

its judgment denying the motion to dismiss and to order the

circuit court to dismiss FCT's claims against Sundy asserted

in its third-party complaint in the Jefferson Circuit Court

action.

    On July 24, 2013, this Court ordered answers and briefs

to the petition.    On July 30, 2013, FCT filed in this Court a

motion to stay its response time because it had filed in the

bankruptcy court a motion to dismiss APC's complaint against

FCT pending in that court.    This Court granted the motion to

stay the response time. Subsequently, the bankruptcy court

denied FCT's motion to dismiss APC's complaint, and FCT filed

its response to Sundy's mandamus petition in this Court.

                                7
1121140

                     II.   Standard of Review

         "'[A] writ of mandamus is an extraordinary
    remedy, which requires the petitioner to demonstrate
    a clear, legal right to the relief sought, or an
    abuse of discretion.' Ex parte Palm Harbor Homes,
    Inc., 798 So. 2d 656, 660 (Ala. 2001). Mandamus is
    the appropriate remedy to correct a trial court's
    failure to properly apply § 6-5-440. See Ex parte
    Chapman Nursing Home, Inc., 903 So. 2d 813 (Ala.
    2004); Ex parte Breman Lake View Resort, L.P., 729
So. 2d 849, 852 (Ala. 1999)."

Ex parte J.E. Estes Wood Co., 42 So. 3d 104, 108 (Ala. 2010).

    "The standard for deciding whether two actions may
    proceed in different courts is similar to the
    standard applied for determining the applicability
    of the doctrine of res judicata; that is, whether
    the issues in the two actions are the same and
    whether the same evidence would support a recovery
    in both actions."

Ex parte Brooks Ins. Agency, 125 So. 3d 706, 710 (Ala. 2013).

                           III.   Analysis

    Section 6-5-440, Ala. Code 1975, Alabama's abatement

statute, provides:

         "No plaintiff is entitled to prosecute two
    actions in the courts of this state at the same time
    for the same cause and against the same party. In
    such a case, the defendant may require the plaintiff
    to elect which he will prosecute, if commenced
    simultaneously, and the pendency of the former is a
    good defense to the latter if commenced at different
    times."

                                  8
1121140

The parties do not dispute that § 6-5-440 applies to abate a

State-court action on the ground that the same action was

previously filed and remains pending in a federal court in

this State.   See Ex parte J.E. Estes Wood Co., 42 So. 3d at

108 (quoting Ex parte Norfolk Southern Ry., 992 So. 2d 1286,

1289 (Ala. 2008)) (stating that "'[t]his Court has previously

held that an action pending in a federal court falls within

the coverage of this Code section'").

    This Court previously has explained the history behind

the prohibition codified in § 6-5-440:

               "'Section   6-5-440,    as   initially
          codified in Ala. Code 1907, § 2451, was "a
          transcript of section 4331 of the Civil
          Code of Georgia."    Ex parte Dunlap, 209
Ala. 453, 455, 96 So. 441, 442 (1923). See
          current version at Ga. Code Ann. § 9-2-5(a)
          (Michie 1982).    However, these statutes
          merely codified the principle expressed in
          the common-law maxim:     "Nemo debet bis
          vexari (si constet curiae quod sit) pro una
          et eadem causa," that is: "No man ought to
          be twice troubled or harassed (if it appear
          to the court that he is), for one and the
          same cause."    O'Barr v. Turner, 16 Ala.
          App. 65, 67-68, 75 So. 271, 274 (1917),
          cert. denied, 200 Ala. 699, 76 So. 997
          (1917). This rule was well established in
          Alabama long before it was first codified
          in Ala. Code 1907, § 2451. In Foster v.
          Napier, 73 Ala. 595 (1883), for example,
          this Court explained:

                              9
1121140

                "'"The doctrine is thus stated in
                1 Bac. Ab. 28, M.:      'The law
                abhors multiplicity of actions;
                and,   therefore,   whenever   it
                appears on record, that the
                plaintiff has sued out two writs
                against the same defendant, for
                the same thing, the second writ
                shall abate; for if it were
                allowed that a man should be
                twice arrested, or twice attached
                by his goods for the same thing,
                by the same reason he might
                suffer in infinitum; ... if there
                was a writ in being at the time
                of suing out the second, it is
                plain the second was vexatious
                and ill ab initio.'"

           "'Foster v. Napier, 73 Ala. 595, 603 (1883)
           (quoting 1 M. Bacon, A New Abridgment of
           the Law 28 (1843)). In fact, the rule was
           well established as early as 1461, for it
           was thoroughly discussed and applied in
           Y.B. 39 Henry VI, pl. 12 (1461), case
           quoted in toto, Commonwealth v. Churchill,
           5 Mass. 174 (1809); see also Sparry's Case,
           5 Coke 61a., 77 Eng. Rep. 148 (K.B.
           1591).'"

Ex parte J.E. Estes Wood Co., 42 So. 3d at 108-09 (quoting

Ex parte State Mut. Ins. Co., 715 So. 2d 207, 213 (Ala. 1997)

(emphasis omitted)).

       The Court also explained in Ex parte J.E. Estes Wood Co.

that

       "the principle codified by the statute 'is founded
       upon the policy of discouraging a multiplicity of

                               10
1121140

    suits   --  of   protecting   the  defendant   from
    oppression, [and] from the grievance of double
    vexation for the same cause or thing.' Foster v.
    Napier, 73 Ala. 595, 606 (1883).         '[W]hen a
    defendant is twice impleaded by the same plaintiff,
    for the same thing, the oppression and vexation is
    not matter of fact; it is a conclusion of law, and
    is not dependent upon an inquiry into the actual
    circumstances of the two cases.' 73 Ala. at 603."

42 So. 3d at 111.

    Sundy's argument that the abatement statute warrants

dismissal of FCT's third-party complaint in the Jefferson

Circuit Court action is misplaced.   As noted, the plaintiffs

in the federal action and in the State action are different.

Each plaintiff is the "'master of [its own] complaint.'"

Ex parte J.E. Estes Wood Co., 42 So. 3d at 111 (quoting Noland

Health Servs., Inc. v. Wright, 971 So. 2d 681, 693 (Ala.

2007)).   Each asserts its own separate and distinct claims

against FCT.    In each of those actions, the third-party

plaintiff, FCT, is authorized by Rule 14(a) to expand the

action by way of a third-party claim, but only to the limited

extent of seeking recovery against a third-party defendant

"for all or part of the plaintiff's claim against the third-

party plaintiff."   Rule 14(a) (emphasis added).   That is, FCT

could not seek to recover from Sundy in the State action

                              11
1121140

(initiated by API Holdings for the purpose of vindicating its

rights and recovering its losses) losses for which FCT might

potentially      be   held   responsible    in        the    federal   action

(initiated by APC for the purpose of vindicating its rights

and recovering its losses).        See, e.g., City of Orange Beach

v. Scottsdale Ins. Co., 166 F.R.D. 506, 510 (S.D. Ala. 1996),

aff'd, 113 F.3d 1251 (11th Cir. 1997) ("'Rule 14(a) does not

allow the defendant to assert a separate and independent claim

even though the claim arises out of the same general set of

facts as the main claim.' United States v. Olavarrieta, 812
F.2d 640, 643 (11th Cir.), cert. denied, 484 U.S. 851, 108
S. Ct. 152, 98 L. Ed. 2d 107 (1987)."); 3 James Wm. Moore,

Moore's Federal Practice § 14.07 (2d ed. 1995) ("Thus, an

impleader claim cannot assert any and all rights to recovery

arising   from    the   same   transaction       or    occurrence      as   the

underlying action." (as quoted in 2 Law & Prac. of Ins.

Coverage Litg. § 15:30 note 5 (June 2014))).

    FCT is, itself, subject to suit by two different primary

plaintiffs    –- API    Holdings   and     APC    –-    in    two   different

lawsuits.    Just as FCT may be held to account in two separate

actions by two separate plaintiffs, it may seek separate

                                   12
1121140

recoveries against a third party in relation to the different

claims and losses it faces in each of those lawsuits.

                       IV.   Conclusion

    FCT's third-party claims against Sundy in the State

action are not barred by the abatement statute. The Jefferson

Circuit court properly declined to dismiss those claims.

Therefore, we deny the petition for a writ of mandamus.

    PETITION DENIED.

    Moore, C.J., and Bolin, Main, and Bryan, JJ., concur.

                              13