United States District Court, D. Kansas
A. KATHLEEN JONES, Plaintiff
MICHAEL DALRYMPLE, SHARON McCAFFREY, CAROL KLATASKE, and LEE DALRYMPLE SPECIAL NEEDS TRUST, Defendants.
MEMORANDUM AND ORDER
SAM A. CROW, Senior District Judge.
The three individual defendants filed a joint motion to dismiss the plaintiff's claims as being subject to res judicata and collateral estoppel, as seeking the relief of a declaratory judgment without a case or controversy, and as lacking sufficient allegations for meeting the required jurisdictional amount in controversy. (Dk. 21). The plaintiffs and the individual defendants are siblings who have been trustees/beneficiaries of three separate family trusts. The family trusts and the plaintiff, A. Kathleen Jones ("Jones"), became members of Dalrymple Farms, LLC ("LLC") which was created in 2002 to own and manage the members' land and assets. A falling out between the siblings over the LLC's management led to contentious litigation in the District Court of Riley County, Kansas. The individual siblings, Michael Dalrymple, Sharon McCaffrey and Carol Klataske ("DM&K"), filed the first state court action in 2009 against Jones alleging breaches of fiduciary obligations and mismanagement of assets of the LLC and the trusts. The same three siblings later filed a related petition in 2013 as beneficiaries/trustees seeking to terminate the three family trusts, Alice A. Wilson Trust, The Esther Mae Dalrymple Trust, and The Lester R. Dalrymple Trust. The plaintiff Jones now seeks to draw the federal court into this fray by having it interpret and enforce the 2002 LLC's Operating Agreement on the applicability of a provision on the transfer of LLC membership interests. For the reasons stated below, the court will grant the defendants' motion to dismiss.
As set forth in her declaratory judgment complaint, the plaintiff Jones resides in Ecuador, South America, and alleges diversity jurisdiction based on the value of her rights to the LLC exceeding $75, 000.00. The complaint alleges that the family trusts "distributed their membership units in Dalrymple Farms to their respective beneficiaries, " and that this was done "[t]hrough a proceeding filed in the District Court of Riley County, Kansas, as Riley County Case No. 13-CV-142." (Dk. 1, ¶ 14). Jones complains that these LLC membership transfers occurred without giving prior written notice to the LLC depriving it and herself of the opportunity under ¶ 11.2 of the LLC's 2002 operating agreement to exercise the first option of purchasing these membership interests. Id. at ¶¶ 16-19. Paragraph 11.2 also provides that if the other members "do not approve the transfer or assignment by unanimous written consent, the transferee or assignee shall have no right to participate in" managing the business, shall have no right to vote, and "shall not be considered a member of the Company." (Dk. 28-2, p. 7). Applying this particular provision to the facts alleged in her complaint, Jones asks the court to find that she is the only voting member of the LLC with the right to manage its business and that none of the defendants possess these rights. (Dk. 1, p. 6).
In their answer, the individual defendants allege that Jones is "the only original remaining member... because the Trusts have been closed by order of the Riley County District Court, and plaintiff has refused to sign the new Operating Agreement that the court ordered." (Dk. 13, p. 2). The defendants assert the affirmative defenses of res judicata and collateral estoppel. The defendants also bring a counterclaim against Jones alleging breaches of fiduciary duty in her role as trustee of two family trusts and in her management of the LLC. (Dk. 13, p. 4).
In seeking dismissal on grounds of res judicata and collateral estoppel, the defendants point to a state court order that directed the sale of the LLC's assets with the exception of mineral rights. The defendants also highlight other state court orders that addressed the owners' placement of these mineral rights into an LLC and the owners' management of this LLC. The defendants assert that the plaintiff has refused to follow the state court orders and now has filed this federal court action in an effort to take over management of the mineral rights contrary to the state court orders. The defendants argue for dismissal in that the plaintiff's federal suit attempts to re-litigate matters resolved in state court and is barred, therefore, by res judicata and collateral estoppel.
STANDARDS GOVERNING MOTION
The defendants do not cite the federal rule authorizing their motion. As the defendants have filed their answer, the court will view their motion as seeking judgment on the pleadings under Rule 12(c). See Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 n.2 (10th Cir.), cert. denied, 537 U.S. 1066 (2002). "A motion for judgment on the pleading under Rule 12(c) is treated as a motion to dismiss under Rule 12(b)(6), " Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1160 (10th Cir. 2000), and the same standards are used. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Cop. v. Twombley, 550 U.S. 544, 570 (2007). The court accepts as true "all well-pleaded factual allegations in a complaint and view[s] these allegations in the light most favorable to the plaintiff." Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009), cert. denied, 558 U.S. 1148 (2010).
On a motion to dismiss or for judgment on the pleadings, courts apply the general rule of considering only the contents of the complaint. Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). Exceptions to this rule include the following: documents expressly incorporated by reference in the complaint; documents referenced in and central to the complaint, when no party disputes authenticity; and "matters of which a court may take judicial notice.'" Id. (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)). "If a district court intends to rely on other evidence, it must convert the Rule 12(b)(6) motion to a motion for summary judgment, giving proper notice to the parties." Gee, 627 F.3d at 1186 (citations omitted); see Fed.R.Civ.P. 12(d) ("All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.").
"Under res judicata, or claim preclusion, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in the prior action." Wilkes v. Wyoming Dept. of Employment Div. of Labor Standards, 314 F.3d 501, 503-04 (10th Cir. 2002) (internal quotation marks and citation omitted), cert. denied, 540 U.S. 826 (2003). Res judicata is an affirmative defense on which the defendant bears the burden of proof. Nwosun v. Gen. Mills Rests., Inc., 124 F.3d 1255, 1256 (10th Cir. 1997), cert. denied, 523 U.S. 1064 (1998). It may be raised in a motion to dismiss or for judgment on the pleadings based on the pleadings in that case and on records in a prior case involving the same parties. See Merswin v. Williams Cos., Inc., 364 Fed.Appx. 438, 441 (10th Cir. 2010); see also Q Int'l Courier, Inc. v. Smoak, 441 F.3d 214, 216 (4th Cir. 2006) ("When entertaining a motion to dismiss on the ground of res judicata, a court may take judicial notice of facts from a prior judicial proceeding when the res judicata defense raises no disputed issue of fact."). The court may "take judicial notice of publicly-filed records in our court and certain other courts concerning matters that bear directly upon the disposition of the case at hand." United States v. Ahidley, 486 F.3d 1184, 1192 n. 5 (10th Cir.) (citations omitted), cert. denied, 552 U.S. 969 (2007).
The plaintiff argues the defendants' motion is procedurally defective in attaching state court records and unauthenticated documents and, therefore, triggers the conversion of the motion to dismiss into a Rule 56 motion for summary judgment. Of the eight exhibits submitted with the defendants' motion, six are state court records, and the other two include a sale document evidencing the LLC's sale of real estate and a second document entitled, "Amended Operating Agreement of Dalrymple Farms, LLC, " that is signed by all siblings but the plaintiff. Arguing that conversion to summary judgment proceedings is required and that the defendants' motion fails to comply with Rule 56 requirements, the plaintiff asks the court to deny the defendants' motion on these procedural grounds. In reply, the defendants say their motion is not procedurally defective, because the court can take judicial notice of the six state court records and regard the other two documents as "immaterial to the issues in this case and [as]... only provided for background information." (Dk. 31, p.3, n.1).
"[D]istrict courts have discretion to accept or reject attached documents" to a motion to dismiss. Lybrook v. Members of Farmington Mun. Schools Bd. of Educ., 232 F.3d 1334, 1341 (10th Cir. 2000) (citation omitted). The court exercises its authority to take judicial notice of the state court records in the prior cases involving the same or related parties, and it will not consider the other materials submitted in support of the motion to dismiss. The court will take judicial notice of the state court records submitted by both sides as coming within the exception for prior judicial records involving the same parties. Moreover, the plaintiff's complaint expressly discusses the 2013 state case and the ruling therein. (Dk. 1, ¶ 14). See Mavrovich v. Vanderpool, 427 F.Supp.2d 1084, 1090 (D. Kan. 2006) (The complaint's reference to prior state cases justified the court looking at them to determine the res judicata argument made in the Rule 12(b)(6) proceeding). The court also will consider the operating agreement which the plaintiff did attach to her complaint and which is the central document to the plaintiff's complaint. (Dk. 1, Ex. A). The court is not required to accept the plaintiff's affidavit and convert the defendants' motion into one for summary judgment just because it considered state court records and the operating agreement. Cf. Geras v. International Business Machines Corp., 638 F.3d 1311, 1314 (10th Cir. 2011). The court is vested with the "discretion to consider such materials." Prager v. LaFaver, 180 F.3d 1185, 1189 (10th Cir.), cert. denied, 528 U.S. 967 (1999). The court believes the defendants' motion can be properly decided without resort to the plaintiff's affidavit and conversion to summary judgment proceedings.
"In determining whether a state court judgment precludes a subsequent action in federal court, we must afford the state judgment full faith and credit, giving it the same preclusive effect as would the courts of the state issuing the judgment." Reed v. McKune, 298 F.3d 946, 949 (10th Cir. 2002) (internal quotation marks and citation omitted). The preclusive effect will not operate when "the party against whom an earlier court decision is asserted did not have a full and fair opportunity to litigate the claim or issue decided by the first court." Allen v. McCurry, 449 U.S. 90, 101 (1980). Thus, the federal court "must determine first whether, under the collateral estoppel rules of Kansas, the previous rulings by the state trial courts bar the plaintiffs from maintaining their present civil rights action; and second, whether the plaintiffs had a full and fair opportunity' to litigate their claims in state court." Phelps v. Hamilton, 122 F.3d 1309, 1318 (10th Cir. 1997).
"The modern trend is to more precisely refer to claim preclusion as res judicata and issue preclusion as collateral estoppel." In re Tax Appeal of Fleet, 293 Kan. 768, 777, 272 P.3d 583 (2012) (citation omitted). Claim preclusion is intended "to prevent relitigation of a final judgment." Id. The four elements to claim preclusion are: "(1) same claim; (2) same parties; (3) claims were or could have been raised; and (4) a final judgment on the merits.'" State v. Martin, 294 Kan. 638, 641, 279 P.3d 704, 704 (2012) (quoting Winston v. Kansas Dept. of SRS, 274 Kan. 396, 413, 49 P.3d 1274, cert. denied, 537 U.S. 1088 (2002)), cert. denied, 134 S.Ct. 114 (2013). Issue preclusion is intended to "prevent a second litigation of the same issue between the same parties, even when raised in a different claim or cause of action." In re Tax Appeal of Fleet, 293 Kan. at 779. The three elements to issue preclusion are:
"(1) a prior judgment on the merits which determined the rights and liabilities of the parties on the issue based upon ultimate facts as disclosed by the pleadings and judgment; (2) the parties must be the same or in privity; and (3) the issue litigated ...