Court Opinion

ID: 7802413
Source: CourtListenerOpinion
Date Created: 2022-08-22 16:00:27.198494+00
Date Added: 2024-06-11T16:29:27.867284
License: Public Domain

United States Court of Appeals
                             For the Eighth Circuit
                         ___________________________

                                 No. 21-3773
                         ___________________________

                                    Bret Healy

                                      Plaintiff - Appellant

                                         v.

               Albert Steven Fox; Bryce Healy; Mary Ann Osborne

                                    Defendants - Appellees
                                  ____________

                     Appeal from United States District Court
                     for the District of South Dakota - Central
                                   ____________

                             Submitted: June 16, 2022
                              Filed: August 22, 2022
                                  ____________

Before GRUENDER, BENTON, and GRASZ, Circuit Judges.
                          ____________

GRUENDER, Circuit Judge.

     Bret Healy appeals the district court’s 1 dismissal of his Racketeer Influenced
and Corrupt Organizations Act (“RICO”) action, see 18 U.S.C. § 1962(c)-(d), in

      1
        The Honorable Roberto A. Lange, Chief Judge, United States District Court
for the District of South Dakota.
which the district court concluded that res judicata and the four-year RICO statute
of limitations bar the action. We affirm.

                                         I.

      This action arises from a dispute over the ownership and control of a family
ranch. In 1961, Bret Healy’s father and grandfather formed the Healy Ranch
Partnership (“HRP”) for the purpose of ranching and farming in which each had
equal ownership interests. The partnership owned land that was used as the family
ranch. After Bret’s father and grandfather died, Bret’s mother, Mary Ann Osborne,
and his grandmother each received a 50 percent interest in the partnership.

       In 1986, Bret’s grandmother transferred her partnership interest to Bret in
exchange for him assuming the partnership’s debt and making certain payments to
her. In 1994, Osborne formed a South Dakota corporation, Healy Ranch, Inc.
(“HRI”). She filed articles of incorporation authorizing HRI to issue 1,000,000
shares of common stock with a par value of one dollar per share. The articles of
incorporation stated that the “corporation will not commence business until
consideration of the value of at least Five Thousand Dollars has been received for
the issuance of shares.” On the filing date, Osborne and her lawyer, Albert Steven
Fox, caused HRI to issue to Osborne 299,348 shares of common stock in HRI. But
at the time, HRI received no consideration for the issuance of those shares.

       In 1995, Osborne conveyed all of the partnership’s real-property interest in
the ranch to HRI, including both her 50 percent share as well as Bret’s 50 percent
share. In 2000, Osborne sold one third of her shares of HRI to Bret and one third to
each of his two brothers, Bryce Healy and Barry Healy. From 1999 to 2017, Bryce
served as secretary and treasurer of HRI with responsibility for all of the financial
recordkeeping. Bret received yearly Schedule K-1 tax forms, which showed that he
owned one third of the stock of HRI. In 1999, Bret became the director and president
of HRI.

                                         -2-
       In 2017, Bret sued Osborne, Bryce, Barry, Fox, the partnership, and HRI in
South Dakota state court asserting causes of action for conversion, fraud, breach of
contract, breach of implied covenant of good faith and fair dealing, breach of
fiduciary duties, negligence, unjust enrichment, and conspiracy to commit fraud.
Among other things, Bret alleged that the 1995 transfer of the ranch from the
partnership to HRI was made without Bret’s knowledge or consent even though he
was a partner with 50 percent ownership. Bret also alleged that Osborne “falsely
and fraudulently failed to disclose to [Bret] that she had conveyed all the partnership
assets to a corporate entity” and that she and the other individual defendants
“concealed the true facts for the purpose of defrauding [Bret].” He further alleged
that the defendants conspired to fraudulently transfer the property and continued to
act “in concert to conceal the transfer of partnership property from [Bret].”

       Discovery lasted less than three months, and the defendants moved for
summary judgment. See Healy v. Osborne (Healy I), 934 N.W.2d 557, 562 (S.D.
2019). On August 10, 2017, the court ordered briefing on the summary-judgment
motions, and it held a hearing on September 22, 2017. On October 13, 2017, the
court granted summary judgment for the defendants on the ground that Bret’s claims
were barred by the statutes of limitations because Bret had at least constructive
knowledge more than six years prior to filing suit of the facts that formed the basis
for his claims. See id. at 562. The South Dakota Supreme Court affirmed. Id. at
565-66.

        While his appeal in Healy I was pending, “Bret prepared and recorded a notice
of claim of interest stating that HRP held an interest in the Ranch.” Healy Ranch,
Inc. v. Healy (Healy II), #29409, 29420, --- N.W.2d ---, 2022 WL 3097830, at *2
(S.D. Aug. 3, 2022). After Healy I was decided, HRI sought to establish “marketable
title” to the ranch and void Bret’s notice of claim. Id. Bret counterclaimed, asking
“to quiet title to the Ranch in HRP, asserting it owned the Ranch.” Id. The South
Dakota Supreme Court recently concluded that Bret’s quiet-title counterclaim was
claim precluded because it “is an overt effort to litigate the same cause of action that
he litigated in [Healy I].” Id. at *9.

                                          -3-
       In March 2021, Bret brought a RICO action in federal court against Osborne,
Bryce, and Fox, alleging mail fraud, bank fraud, see § 1962(c), and conspiracy to
engage in a pattern of racketeering, see § 1962(d). His claims were based on the
theory that the defendants knew that HRI’s stock was void because it was issued
without consideration but nonetheless fraudulently represented to Bret that he owned
shares in HRI. According to Bret, when the stock was issued, Osborne did not
provide consideration for the shares. Later, she transferred the partnership’s interest
in the ranch to HRI and then sold some of her shares—representing them as valid—
to Bret. Bret alleged that the transfer of the ranch did not constitute valid
consideration for the issuance of stock as required by HRI’s articles of incorporation
because it was a transfer of the partnership’s interest, not consideration paid by
Osborne.

       Bret alleged that he did not realize that no consideration had been provided
for the issuance of the shares until August 8, 2017 when he received financial
documents in response to a subpoena served in connection with his state action. Bret
also alleged that Osborne and Bryce delivered fraudulent Schedule K-1 forms to him
showing that he owned one third of HRI and that Osborne, Bryce, and Fox formed
a conspiracy to engage in a pattern of racketeering from 1999 through 2017. The
defendants filed motions to dismiss for failure to state a claim. The district court
granted the motions on the grounds that the RICO action was barred by res judicata
and the four-year RICO statute of limitations. See Hope v. Klabal, 457 F.3d 784,
790 (8th Cir. 2006) (RICO statute of limitations). Bret appeals.

                                           II.

       We affirm the district court’s dismissal on the ground that Bret’s federal suit
is barred by res judicata. “We review de novo the district court’s grant of a motion
to dismiss for failure to state a claim based on res judicata.” Laase v. Cnty. of Isanti,
638 F.3d 853, 856 (8th Cir. 2011). “To survive a motion to dismiss for failure to
state a claim, a complaint must allege sufficient facts to state a facially plausible
claim to relief.” Cook v. George’s, Inc., 952 F.3d 935, 938 (8th Cir. 2020). “To

                                          -4-
determine whether a complaint states a facially plausible claim, we accept the factual
allegations in the complaint as true and draw all reasonable inferences in the
nonmovant’s favor.” Id.

        “[A] federal court must give to a state court-judgment the same preclusive
effect as would be given that judgment under the law of the State in which the
judgment was rendered.” Migra v. Warren City Sch. Dist., 465 U.S. 75, 81 (1984).
The judgment here was rendered in South Dakota. See Healy, 934 N.W.2d 557.
“[A] [(1)] final judgment or decree of a court of competent jurisdiction upon the
merits is a bar to any future action [(2)] between the same parties or their privies
[(3)] upon the same cause of action so long as it remains unreversed . . . .” Golden
v. Oahe Enters., Inc., 240 N.W.2d 102, 109 (S.D. 1976). Additionally, to apply res
judicata in South Dakota, (4) “there must have been a full and fair opportunity to
litigate the issues in the prior adjudication.” Dakota, Minn. & E. R.R. v. Acuity, 720
N.W.2d 655, 661 (S.D. 2006). The parties agree that Healy I is a final judgment on
the merits 2 and that the parties in the two actions are the same.

                                          A.

       First, we address whether the cause of action is the same in both the state and
federal action. “Whether causes of action are identical depends on whether the
wrong sought to be redressed is the same in both actions.” Hicks v. O’Meara, 31
F.3d 744, 746 (8th Cir. 1994). “To make this determination, South Dakota law
requires we look to the underlying facts which give rise to each cause of action.”
Id.; see also Ruple v. City of Vermillion, 714 F.2d 860, 861-62 (8th Cir. 1983) (noting
that “if a case arises out of the same nucleus of operative fact, or is based upon the
same factual predicate, as a former action,” South Dakota courts would agree “that
the two cases are really the same ‘claim’ or ‘cause of action’ for purposes of res

      2
       Bret initially disputed that the South Dakota Supreme Court would hold that
a dismissal based on the statute of limitations is a final judgment on the merits, but
in Healy II it decided that it was. See Healy II, 2022 WL 3097830, at *10. Now,
Bret concedes that Healy I is a final judgment on the merits.

                                         -5-
judicata”). “If the claims arose out of a single act or dispute and one claim has been
brought to a final judgment, then all other claims arising out of that same act or
dispute are barred.” Farmer v. S.D. Dep’t of Revenue & Regul., 781 N.W.2d 655,
660 (S.D. 2010). “This is true regardless of whether there were different legal
theories asserted or different forms of relief requested in a subsequent action.” Id.

      Like the South Dakota Supreme Court did in Healy II as to Bret’s quiet-title
action, we hold that Bret’s RICO action is the same cause of action as Healy I. See
Healy II, 2022 WL 3097830, at *9. Here, as in Healy II, “Bret is again addressing
the same wrong he identified in [Healy I]—the alleged wrongful conduct by
members of his family to vest HRI with ownership of the Ranch.” Id.

       This RICO action “arises out of the same nucleus of operative fact” as Healy
I. See Ruple, 714 F.2d at 861. Both Healy I and this RICO action largely involve
and originate from Osborne’s formation of HRI in 1994 and the transfer of the ranch
to HRI in 1995. In Healy I, Bret alleged that the concealment of the transfer that
included his partnership interest was fraudulent. In the federal action, Bret alleged
that the defendants fraudulently represented to him that he owned shares in HRI (and
thus had an interest in the ranch), which is premised on the claim that the stock is
void because the transfer of the partnership’s interest in the ranch to HRI was not
valid consideration for the issuance of HRI stock. See Ipswich Printing Co. v.
Engler, 259 N.W. 497, 498 (S.D. 1935) (“In the absence of express prohibition, a
corporation may receive or contract to receive property in payment for its stock,
providing the acquisition is not ultra vires and the transaction is in good faith and
free from fraud.”). From these facts, we conclude that the wrong Bret primarily
seeks to redress in both actions is the defendants’ depriving him of his ownership
interest in the ranch.

       True, the theories of liability that Bret asserts in this action are different from
those that he asserted in Healy I. And the two actions do not require absolutely
identical proof. But South Dakota law requires only that the actions seek to redress
the same wrong, not that they involve the same legal theories. Healy II, 2022 WL

                                           -6-
3097830, at *9; Farmer, 781 N.W.2d at 660. South Dakota courts also do not require
entirely the same proof in both actions. See Ruple, 714 F.2d at 861-62 (noting that
“all of the theories that a dismissed employee can bring . . . to challenge the dismissal
should be raised and decided in the same lawsuit,” which would include theories that
do not require identical proof). Though Bret focuses his federal complaint on the
stock issuance, the underlying facts in both actions are sufficiently similar to render
the causes of action in the two actions identical for purposes of res judicata under
South Dakota law.

                                           B.

       Second, Bret had a full and fair opportunity to litigate the issue of whether the
transfer of the partnership’s interest in the ranch to HRI constitutes consideration for
the stock issuance. Claim preclusion “bars prosecution of claims that could have
been raised in the earlier proceeding, even though not actually raised.” Am. Family
Ins. Grp. v. Robnik, 787 N.W.2d 768, 775 (S.D. 2010). Whether the party “had a
full and fair opportunity to litigate is not determined by whether it is still possible to
find additional evidence concerning that claim.” Est. of Johnson v. Weber, 898
N.W.2d 718, 733 (S.D. 2017) (internal quotation marks omitted). “[N]ewly-
discovered evidence does not provide an exception to res judicata.” Id.

       Bret alleged that he was not aware that HRI’s stock had not been validly issued
until August 8, 2017, when he obtained from HRI’s accounting firm more than two-
hundred pages of tax working papers for HRI from 1995 through 2016 in response
to a third-party subpoena he had served in June 2017. Bret argues that the newly
discovered papers give rise to a separate claim and are therefore not “new evidence
relating to defendants’ conduct in connection with transfer to the corporation of
record title to the ranch.” Bret also argues that he did not have enough time before
the summary-judgment briefing was due to review the papers and raise the issue of
the void stock issuance, especially because he had to review other documents from
the 2,000 discovery requests he sent.

                                           -7-
        First, we disagree with Bret’s claim that the tax working papers are not new
evidence relating to the transfer of the title to the ranch. The void-stock theory
depends on the transfer of the partnership’s interest in the ranch to HRI not being
valid consideration for the issuance of the stock. Second, we disagree that Bret
lacked a full and fair opportunity to litigate the void-stock theory in state court
simply because he only had a few weeks to review the tax working papers. The fact
that Bret might have discovered the evidence about the allegedly void stock if he
had more time does not mean he did not have a full and fair opportunity to litigate
the issue. If the discovery of new evidence after the judgment that the party never
had a chance to review does not deprive the party of its full and fair opportunity to
litigate, then evidence the party had at least eight weeks before judgment was entered
and merely failed to review also does not do so. See Est. of Johnson, 898 N.W.2d
at 733. Further, as a practical matter, Bret could have moved to amend his complaint
to add an additional claim about the void stock at any point before the state court
entered summary judgment on October 13, 2017. See Healy, 934 N.W.2d at 562
(listing the date summary judgment was entered); S.D. Codified Laws § 15-6-15(a)
(providing for amendments to pleadings); Isakson v. Parris, 526 N.W.2d 733, 735-
36 (S.D. 1995) (stating that a trial court has discretion to grant a motion to amend
before, during, and even after trial so long as it does not prejudice the opposing
party).

        “Bret was aware of each and every fact necessary to have brought [this] action
in 2017. Instead, he elected to pursue different claims and remedies whose lack of
success should have signaled the end of the dispute.” See Healy II, 2022 WL
3097830, at *12. Therefore, we hold that Bret had a full and fair opportunity to
litigate the validity of the stock issuance in state court.

                                   *      *     *

                                         -8-
      In sum, we conclude that all four factors required to apply res judicata are
present here. Therefore, the state-court judgment against Bret has preclusive effect.3

                                         III.

     For the foregoing reasons, we affirm the district court’s dismissal of Bret’s
complaint.
                     ______________________________

      3
        Because we affirm on the ground of res judicata, we need not reach the
statute of limitations question.

                                         -9-