Court Opinion

ID: 222063
Source: CourtListenerOpinion
Date Created: 2011-07-28 16:15:28+00
Date Added: 2024-06-11T17:28:52.863089
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit

                                                                     July 28, 2011
                    UNITED STATES COURT OF APPEALS
                                                 Elisabeth A. Shumaker
                                                                     Clerk of Court
                                 TENTH CIRCUIT

 JOHN NIKOLS, an individual,

              Plaintiff-Appellant/
              Cross-Appellee,

 v.                                                Nos. 10-4127 and 10-4134
                                                          (D. of Utah)
 DAVID CHESNOFF, an individual;                  (D.C. No. 2:10-CV-00004-TS)
 GOODMAN & CHESNOFF, a Nevada
 professional corporation,

              Defendants-Appellees/
              Cross-Appellants.

                           ORDER AND JUDGMENT *

Before BRISCOE, Chief Judge, EBEL, and TYMKOVICH, Circuit Judges.

      This appeal arises out of John Nikols’s efforts to assert a property interest

in land owned by his son. Nikols claimed rights in the land after his son’s lawyer

obtained a prejudgment attachment to the property for unpaid legal fees. Nikols

challenges the district court’s dismissal of his quiet title and equitable lien claims

to the property as barred by res judicata. The lawyer, David Chesnoff, cross-

      *
         This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
appeals the district court’s denial of his motion for sanctions under Rule 11 of the

Federal Rules of Civil Procedure.

      We conclude the district court’s finding of claim preclusion was correct.

Nikols had every procedural and substantive opportunity to vindicate his

ownership interest in the land under Utah law. Having lost in state court on the

issue of ownership, his claim in federal court is barred. We also find the district

court erred in denying without considering Chesnoff’s motion for sanctions under

Rule 11.

      Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we AFFIRM in part

and REVERSE and REMAND in part.

                                    I. Background

      Nikols’s son, Michael, was arrested on federal drug charges. Michael hired

Chesnoff to represent him for a flat fee of $350,000. Michael subsequently

pleaded guilty to distribution of a controlled substance. Nikols paid Chesnoff

$160,000 of the fee, but the remaining $190,000 was never paid.

      Seeking the balance of his fee, Chesnoff filed a complaint against Michael

in Utah state court for breach of contract. He obtained a prejudgment writ of

attachment on four parcels of land (the Parcels) titled in Michael’s name. Soon

afterward, Michael transferred his interest in the Parcels by quitclaim deed to

Nikols. Nikols and Michael then filed cross-claims against Chesnoff in the

contract action, alleging breach of contract and unjust enrichment. Nikols also

                                         -2-
made a motion to discharge Chesnoff’s writ of attachment, asserting that he,

rather than Michael, was the true owner of the Parcels. The state court granted

summary judgment to Chesnoff and awarded him $190,000 for unpaid fees. The

court also reaffirmed the writ of attachment. But the court stayed execution of

the attachment until Nikols could conduct discovery and perhaps illuminate his

competing claim of a property interest in the Parcels.

      Following discovery, the state court conducted a postjudgment hearing in

which Nikols asserted his claim of a purchase money resulting trust in the

Parcels. Nikols argued that although Michael held paper title to the Parcels,

Nikols himself purchased the property and therefore had a trust interest under

Utah law. In that action, Chesnoff and Nikols were represented by counsel and

Michael appeared pro se. Both sides presented witnesses. Ultimately, the state

court ruled Michael had been the owner of the Parcels at the time Chesnoff

obtained the writ of attachment, and rejected Nikols’s trust theory. The court

therefore concluded Chesnoff was entitled to proceed with the execution of the

attachment. Nikols and Michael unsuccessfully appealed to the Utah Court of

Appeals. 1

      After a delay for Michael’s criminal retrial, Chesnoff obtained a writ of

execution against the Parcels from the state court. Nikols and Michael challenged

      1
          Nikols v. Goodman & Chesnoff, 206 P.3d 295 (Utah Ct. App. 2009).

                                         -3-
this writ in several ways. On December 15, 2009, both Nikols and Michael filed

pro se objections to the writ of execution in state court. On January 4, 2010, they

also initiated this action in federal district court seeking the following: (1) to

quiet title in the Parcels, (2) to obtain an equitable lien on the Parcels, and (3) to

recover the value of investments made in the Parcels under the Occupying

Claimant’s Act. Following a hearing on January 6, 2010, the state court denied

the objections to the writ on grounds of claim preclusion. The court found that

Nikols’s claims of interest in the Parcels had either already been adjudicated or

should have been raised in the postjudgment hearing. Nikols and Michael

immediately filed a motion for emergency writ to stay the execution, which was

denied by the Utah Court of Appeals. 2 They then filed a motion for a temporary

restraining order in the federal district court, which was also denied. Nikols and

Michael also appealed the state court’s denial of their objections to the writ to the

Utah Supreme Court. The appeal was transferred to the Utah Court of Appeals.

      On June 28, 2010, the federal district court granted Chesnoff’s motion to

dismiss the complaint. The court held the quiet title and equitable lien claims

were barred by claim preclusion, as they should have been raised in the state

court postjudgment hearing. The court also denied Chesnoff’s motion for

sanctions. This appeal followed.

      2
        Goodman & Chesnoff v. Nikols, No. 20100046, 2010 UT App 53 (Utah
Ct. App. Mar. 4. 2010).

                                           -4-
        On November 26, 2010, while the appeal in this court was pending, the

Utah Court of Appeals affirmed the state court’s denial of the objections to the

writ of execution. 3 The Court of Appeals agreed with the state court’s finding of

claim preclusion. The court held specifically that the postjudgment decision was

a final judgment on the question of Nikols’s ownership interest in the land and

that the hearing met due process requirements.

                                    II. Discussion

        Nikols appeals the district court’s finding that his quiet title and equitable

lien claims are barred by res judicata. Chesnoff cross-appeals the district court’s

denial of his request for sanctions under Rule 11. We address each argument in

turn.

        A. Res Judicata

        Whether a claim is barred by res judicata is a legal question we review de

novo. Valley View Angus Ranch, Inc. v. Duke Energy Field Servs., 497 F.3d

1096, 1100 (10th Cir. 2007). To determine the preclusive effect of a state

judgment, we apply the law of that state. 28 U.S.C. § 1738; Valley View Angus

Ranch, Inc., 497 F.3d at 1100.

        Utah courts have explained res judicata includes two distinct doctrines:

claim preclusion and issue preclusion. Penrod v. Nu Creation Creme, 669 P.2d

        3
        Chesnoff v. Nikols, No. 20100413, 2010 WL 4816225 (Utah Ct. App.
Nov. 26, 2010).

                                           -5-
873, 875 (Utah 1983). Claim preclusion prevents a party from relitigating a claim

for relief that was or could have been the subject of a prior judgment. Id. This

doctrine serves “vital public interests,” which include “fostering reliance on prior

adjudications; . . . preventing inconsistent decisions; . . . relieving parties of the

cost and vexation of multiple lawsuits; and . . . conserving judicial resources.”

State, Office of Recovery Servs. v. V.G.P., 845 P.2d 944, 946 (Utah Ct. App.

1992) .

          Under Utah law, claim preclusion bars litigation of a claim where three

elements are met. First, both the current and original suit “must involve the same

parties or their privies.” Miller v. USAA Cas. Ins. Co., 44 P.3d 663, 678 (Utah

2002). 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.” Id. Third, “the first suit must have resulted in a final judgment on the

merits.” Id.

          Nikols also identifies a fourth element that informs the first three: the

parties must have had a full and fair opportunity to litigate the claim in the first

suit. To satisfy this standard under Utah law, the party asserting preclusion must

show the fundamental requirements of due process were met in the original

proceeding. Copper State Thrift & Loan v. Bruno, 735 P.2d 387, 391 (Utah Ct.

App. 1987). Under Utah law, this is ordinarily an element only for issue

preclusion. See Snyder v. Murray City Corp., 73 P.3d 325, 332 (Utah 2003)

                                             -6-
(discussing the elements of claim and issue preclusion, respectively). But the

Utah Supreme Court has applied the full and fair litigation requirement to claim

preclusion in at least one case. Salt Lake City v. Silver Fork Pipeline Corp., 913

P.2d 731, 733 (Utah 1995). And Utah courts have recognized generally that claim

preclusion is limited by state and federal principles of due process. See Brigham

Young Univ. v. Tremco Consultants, Inc., 110 P.3d 678, 686 (Utah 2005)

(“[P]reclusion based on privity is an exception to the deep-rooted historic

tradition that everyone should have his own day in court . . . . [But t]he due

process clauses prevent preclusion when the relationship between the party and

non-party becomes too attenuated.”) (quotations omitted); see also Brown v.

Jorgensen, 136 P.3d 1252, 1260 (Utah Ct. App. 2006). We therefore assume the

Utah courts would not enforce claim preclusion if the original proceedings lacked

due process under Utah law.

      Finally, a federal court will not give preclusive effect to a judgment that

does not satisfy constitutional requirements of due process. Kremer v. Chemical

Constr. Corp., 456 U.S. 461, 480–83 (1982). Thus, we must also consider

whether Nikols’s claims were fully and fairly litigated to “satisfy the minimum

procedural requirements of the Fourteenth Amendment’s Due Process Clause.”

Id.

      Here, the parties do not dispute that the first and second elements of claim

preclusion are met. Nikols bases his challenge on the third element, arguing the

                                         -7-
postjudgment hearing did not constitute a final judgment on the merits. He also

contends his claims should not be barred because the postjudgment hearing did

not afford him due process under Utah law.

      1. The Recent Decision by the Utah Court of Appeals

      As an initial matter, the Utah Court of Appeals recently addressed both of

these issues in Nikols and Michael’s appeal of the writ of execution. In affirming

the lower court’s finding of claim preclusion, the Court of Appeals held that the

postjudgment hearing “resulted in a final judgment on the merits,” and that

“Nikols was afforded a proceeding subject to the full spectrum of due process.”

Chesnoff v. Nikols, No. 20100413, 2010 WL 4816225, at *1 (Utah Ct. App. Nov.

26, 2010) (quotations omitted).

      Because we agree with the Court of Appeals’ conclusions, we need not

consider whether we must defer to its reasoning under the related doctrine of

issue preclusion.

      2. The District Court Did Not Err in Finding Claim Preclusion

      Our independent review confirms the postjudgment hearing resulted in a

final judgment and provided Nikols with due process under state and federal law.

             a. The Postjudgment Hearing Resulted in a Final Judgment

      Finality requires that the court dispose of all the parties and issues; the

judgment is not final if claims are left pending. Miller, 44 P.3d at 678. “A

judgment or order is final for purposes of collateral estoppel until reversed on

                                          -8-
appeal, modified, or set aside in the court of rendition.” Berry v. Berry, 738 P.2d

246, 249 (Utah Ct. App. 1987).

      Here, the Utah district court expressly resolved Nikols’s claim of a

purchase money resulting trust in the Parcels and issued an order based on its

conclusions. The court laid out its findings as follows:

      D. The Court concludes that John Nikols failed to meet his burden
         of establishing that a resulting trust existed with respect to the
         [Parcels].

      E. The [Parcels] were legally titled in the name of Michael Nikols at
         the time Chesnoff attached them in December 2005 and had been
         so titled since 1988.

      F. Thus, Chesnoff may lawfully proceed with his writ of attachment.

Aplt. App. at 52.

      Nikols suggests any order issued in a postjudgment proceeding is not a

final judgment except as to the judgment debtor. But he offers little to support

this contention. The sole case that he cites, Brigham Young Univ. v. Tremco

Consultants, Inc., 156 P.3d 782, 788 (Utah 2007), did not address the finality of a

postjudgment decision, and therefore provides no assistance. We thus conclude

the postjudgment decision was a final judgment.

             b. The Postjudgment Hearing Provided Due Process Under Utah
             Law

      Nikols contends the postjudgment order cannot have preclusive effect

because the proceedings lacked the fundamental protections of due process.

                                         -9-
Specifically, he argues due process under Utah law required that he be served

with a formal complaint and receive a jury trial.

        In support, Nikols cites Tremco. In that case, the Utah Supreme Court

vacated an order from a postjudgment collection hearing because the proceedings

lacked due process. Tremco, 156 P.3d at 788. The lower court had allowed the

plaintiff to enforce a money judgment against non-parties, on the theory that the

non-parties were the alter ego of the defendant, or, alternatively, that they had

received a fraudulent transfer from the defendant. The court refused the non-

parties’ motion to intervene to defend themselves and entered an order against

them.

        The Utah Supreme Court reversed, holding “[t]he bare essentials of due

process [] mandate adequate notice to those with an interest in the matter and an

opportunity for them to be heard in a meaningful manner.” Id. The court also

found the claims the plaintiff brought against the non-parties—claims of alter ego

and fraudulent transfer—should have been brought in a civil suit. Id. at 790–91.

The court held, “a violation of due process does occur if a court permits a cause

of action that should properly be prosecuted as a civil action to proceed under

those rules promulgated to assist in the collection efforts of a judgment creditor.”

Id. at 790. The court further noted that a civil action requires a complaint and a

jury trial. Id.

                                         -10-
      Nikols interprets Tremco to hold an individual’s property interests cannot

be adjudicated without a full civil action, complete with a complaint and a jury

trial. He therefore suggests “the only rights that can be adjudicated in

postjudgment collection proceedings are the judgment debtor’s,” Aplt. Br. at 8,

as this individual has already received the necessary due process in the original

judgment.

      This is much too broad a reading of the court’s holding. Tremco stands for

two basic propositions. First, postjudgment collection proceedings cannot

adjudicate the rights of non-parties who have not been afforded a hearing.

Tremco, 156 P.3d at 788. And second, they may not “provide an alternative form

of summary adjudication of claims that would otherwise be required to be

prosecuted as civil actions.” Id. at 791. The postjudgment order in Tremco failed

on both counts.

      This case stands in a far different procedural posture. Here, Nikols, after

he intervened, was a party to the original action and was provided ample

opportunity to defend his ownership interest in the Parcels. Further, Nikols has

not shown Chesnoff used the postjudgment proceedings to assert a claim against

him that would otherwise require prosecution in a civil action. Nikols does draw

our attention to several claims regarding real property that would fall into this

category, including claims to recover property, to quiet title, and for adverse

possession. But Chesnoff did not bring a claim against Nikols, either actually or

                                         -11-
functionally. He sought only to enforce his judgment against Michael, the

judgment debtor and the record owner of the property. The fact that Nikols

intervened to claim an interest in the property did not oblige Chesnoff to bring a

separate suit against Nikols. Utah law provides procedures for third parties with

an interest in property to assert their rights in the course of an execution of a

judgment. Nikols chose to take advantage of those opportunities, but lost.

      Because Nikols has not shown he was entitled to a full civil trial under

Tremco, he cannot prevail on his claim that the postjudgment proceedings denied

him due process. Under Utah law, due process ordinarily requires “only that the

parties must receive notice, reasonably calculated, under all the circumstances, to

apprise them of the pendency of the action” and “an opportunity to present their

objections.” Career Serv. Review Bd. v. Utah Dep’t of Corr., 942 P.2d 933, 939

(Utah 1997) (holding “our case law does not require either a motion or a hearing

for full and fair litigation”); see also 3D Constr. and Dev., L.L.C. v. Old Standard

Life Ins. Co., 117 P.3d 1082, 1087 (Utah Ct. App. 2005) (stating that a judgment

need not be the result of a trial to have preclusive effect; the issue was fully and

fairly litigated “if the party against whom issue preclusion is sought had adequate

notice and an opportunity to litigate the issue”).

      The postjudgment proceedings were more than sufficient under this

standard. Nikols not only received notice and a hearing, but enjoyed legal

                                          -12-
representation, conducted discovery, presented witnesses, cross-examined

Chesnoff’s witnesses, and appealed the court’s decision.

             c. The Postjudgment Hearing Provided Due Process Under Federal
             Law

      “[S]tate proceedings need do no more than satisfy the minimum procedural

requirements of the Fourteenth Amendment’s Due Process Clause in order to

qualify for the full faith and credit guaranteed by federal law.” Kremer, 456 U.S.

at 481. A jury trial is not required to meet this standard; a proceeding that

involves notice, an adversarial hearing, an opportunity to cross-examine

witnesses, representation by counsel, and appellate review is more than sufficient.

See id. at 484; Bolling v. City & County of Denver, 790 F.2d 67, 68–69 (10th Cir.

1986) (finding a state administrative decision that was the result of an adversarial

hearing and that was affirmed by the Colorado Court of Appeals was entitled to

preclusive effect). The proceedings in Utah state court thus met the due process

requirements of federal law.

      In sum, we agree with the district court that Nikols’s claims are barred by

claim preclusion.

      B. Sanctions

      Turning to the cross-appeal, Chesnoff challenges the district court’s denial

of his motion for sanctions under Rule 11 of the Federal Rules of Civil Procedure.

We review the district court’s decision not to impose sanctions under Rule 11 for

                                         -13-
an abuse of discretion. White v. General Motors Corp., 908 F.2d 675, 678 (10th

Cir. 1990).

      Chesnoff requested sanctions through two different motions. In his motion

to dismiss, he requested attorney’s fees pursuant to Utah Code Ann. § 78B-5-825.

He then filed a second motion for sanctions under Rule 11. When the district

court dismissed the complaint, it also denied Chesnoff’s request for attorney’s

fees under § 78B-5-825, finding Chesnoff had failed to show Nikols made his

claims in bad faith. But it did not address the separate motion for sanctions under

Rule 11. The court then stated: “ORDERED that Defendant’s Motion for

Sanctions is DENIED. It is further ORDERED that all other pending motions are

moot.” Nikols v. Chesnoff, No. 2:10-CV-0004-TS, 2010 WL 2639968, at *7 (D.

Utah June 28, 2010).

      It is not clear whether the district court denied Chesnoff’s Rule 11 motion

under its first order, that “Defendant’s Motion for Sanctions is DENIED” or the

second, finding that “all other pending motions are moot.” But either way, we

find the denial of this motion without conducting the inquiry required by Rule 11

was abuse of discretion.

      Because the standards for the Utah fee shifting statute and Rule 11 are not

the same—§ 78B-5-825 requires a showing of bad faith, Still Standing Stable,

L.L.C. v. Allen, 122 P.3d 556, 560 (Utah 2005), but Rule 11 uses an objective

standard of reasonableness, White, 908 F.2d at 680—the district court’s resolution

                                        -14-
of the § 78B-5-825 motion did not dispose of the Rule 11 motion. And there is

nothing to support a finding that the Rule 11 motion was moot, given that the

district court dismissed Nikols’s claims and concluded “Defendant has made a

fair showing that this suit has no merit . . . .” Nikols, 2010 WL 2639968, at *6.

       We therefore remand this case for the limited purpose of determining

whether Nikols violated Rule 11. The district court is in the best position to

determine whether any violation of Rule 11 occurred. Cooter & Gell v. Hartmarx

Corp., 496 U.S. 384, 403 (1990) (noting whether a litigant’s position is factually

well grounded and legally tenable for Rule 11 purposes is a “fact specific”

determination which the district court is “better positioned” to make).

                                  III. Conclusion

      Accordingly, we AFFIRM the district court’s dismissal of Nikols’s

complaint. We also REVERSE the denial of Chesnoff’s motion for sanctions

under Rule 11 and REMAND for the limited purpose of determining the propriety

any such sanctions.

                                                ENTERED FOR THE COURT

                                                Timothy M. Tymkovich
                                                Circuit Judge

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