FILED NOV 4 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. SC-20-1066-GFB LEUCADIA GROUP, LLC, Debtor. Bk. No. 3:16-bk-5474-CL
CALDARELLI HEJMANOWSKI PAGE & Adv. No. 3:18-ap-90169-CL LEER LLP, Appellant, v. MEMORANDUM* RONALD E. STADTMUELLER, Trustee; UAS INVESTMENTS, LLC, Appellees.
Appeal from the United States Bankruptcy Court for the Southern District of California Christopher B. Latham, Bankruptcy Judge, Presiding
Before: GAN, FARIS, and BRAND, Bankruptcy Judges.
INTRODUCTION
Appellant Caldarelli Hejmanowski Page & Leer, LLC (“CHPL”)
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. appeals the bankruptcy court’s order granting Chapter 71 trustee Ronald E.
Stadtmueller’s (“Trustee”) motion for summary judgment and denying
CHPL’s cross-motion for summary judgment, and the bankruptcy court’s
judgment disallowing CHPL’s claim. The bankruptcy court determined
that CHPL’s claim, which it acquired from UAS Investments, LLC (“UAS”),
was barred by claim preclusion.2 In a prior case in the Georgia state court,
UAS dismissed its contract claims against debtor Leucadia Group, LLC
(“Debtor”) with prejudice. The bankruptcy court properly applied Georgia
law in determining that the claim was barred by claim preclusion. We
AFFIRM.
FACTS
A. Prepetition Events
Debtor is a California LLC, formed in 2013 by Robert Miller
(“Miller”) and Sean Frisbee (“Frisbee”) for the purpose of obtaining
commercial and government contract work in aerospace engineering. Until
January 2015, Miller and Frisbee were each 50% owners of Debtor, and
Miller served as president.
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 2 For clarity, we refer to “claim preclusion” rather than “res judicata.” See Taylor v. Sturgell, 553 U.S. 880, 892 n.5 (2008).
2 After Debtor was formed, Miller began discussions with Daryl
Moody (“Moody”) about opportunities to invest in Debtor. In December
2013, Debtor entered into an agreement with Moody’s company, Mast
Nine, Inc. (“Mast Nine”), which gave Mast Nine the option to make a
convertible loan of up to $1,575,000, to be secured by Debtor’s assets (the
“Loan Agreement”). Under the Loan Agreement, if Mast Nine loaned the
full $1,575,000, it could convert its debt into a one-third ownership interest.
Mast Nine subsequently assigned its rights under the Loan Agreement to
UAS, a newly formed affiliate controlled by Moody. Pursuant to the Loan
Agreement, UAS loaned Debtor a total of $650,000.
During 2014, disputes arose between Miller, Frisbee, and Moody over
Debtor’s operation. By the end of 2014, Debtor’s financial condition had
deteriorated, and in January 2015, Miller informed Frisbee and Moody that
Debtor did not have the financial capability to continue operating. Miller
then proposed to UAS that he would dissolve Debtor unless UAS agreed to
take either $50,000 on its $650,000 loan, or an 8% interest in Debtor.
On January 16, 2015, Frisbee appointed Moody as a director of
Debtor, and together, they removed Miller as president. That same day,
UAS and Frisbee filed a complaint in Georgia state court against Debtor
and Miller for breach of contract and injunctive relief (the “Georgia
Action”). UAS and Frisbee asserted that Miller’s communication to UAS
was an unqualified repudiation of the Loan Agreement and a breach of
3 contract.
A month later, UAS and Frisbee filed an amended complaint,
removing Debtor and asserting claims against only Miller. The affidavit of
the process server indicated that the summons, complaint, and amended
complaint were served on Miller at his residence on March 14, 2015.
Although Miller was purportedly removed as Debtor’s president in
January 2015, he was listed as the service agent for Debtor with the
California Secretary of State and remained so until May 7, 2015. Frisbee
later dismissed all his claims in the action without prejudice and was
removed as a plaintiff.
Miller then moved to disqualify UAS’s counsel based on asserted
conflicts arising from its prior representation of Miller and its concurrent
involvement in defending Debtor in a separate California suit. He argued
that omitting Debtor from the amended complaint was insufficient under
Georgia law to remove Debtor as a defendant.
In response, UAS filed an unopposed motion to dismiss Debtor
pursuant to Ga. Code § 9-11-41 and submitted a proposed order dismissing
Debtor with prejudice. The state court entered the order dismissing all
claims against Debtor with prejudice in May 2015.
In October 2017, the state court granted partial summary judgment in
favor of Miller. UAS and Miller then entered into a settlement and
dismissed the remainder of the case with prejudice in July 2018.
4 B. The Bankruptcy Case And Adversary Proceeding
While the Georgia Action was pending, UAS filed an involuntary
chapter 11 petition against Debtor. The bankruptcy court entered an order
for relief and converted the case to chapter 7 in March 2017. UAS filed a
proof of claim for $716,010.61 based on the Loan Agreement.3 UAS later
partially assigned its claim to CHPL.
In September 2018, Trustee filed an adversary complaint against UAS
and CHPL seeking disallowance of the claims arising from the Loan
Agreement.4 Trustee asserted that Debtor’s obligations under the Loan
Agreement were extinguished because UAS dismissed Debtor with
prejudice in the Georgia Action.
CHPL filed an answer denying the allegations. Trustee and UAS then
entered into a stipulation whereby UAS agreed to not defend the action
and to allow entry of a default and entry of judgment consistent with any
eventual judgment against CHPL.
C. The Summary Judgment Motions And The Court’s Ruling
In November 2018, Trustee filed a motion for summary judgment,
3 UAS asserted that its claim was secured in the amount of $696,010.61 and unsecured in the amount of $20,000. 4 Trustee also sought to avoid UAS’s UCC-1 financing statement under §§ 544 and 548, and a declaration that the security interest was unenforceable due to an insufficient collateral description. Because the bankruptcy court disallowed the entire claim, it did not determine whether any part of the claim was secured.
5 asserting that UAS’s claim was barred by claim preclusion. Trustee argued
that Debtor’s liability under the Loan Agreement was at issue in the
Georgia Action because UAS treated the purported repudiation as an
immediate breach of contract. Trustee also argued that dismissal with
prejudice operated as an adjudication on the merits and, under Georgia
law, UAS was precluded from asserting claims against Debtor based on the
Loan Agreement.
CHPL opposed the motion and filed a cross motion for summary
judgment. CHPL argued that claim preclusion was inapplicable because
Debtor was not served with the complaint, never appeared in the Georgia
Action, and therefore was not a party. CHPL also argued that at the time of
dismissal no claims against Debtor were pending because the complaint
had been amended, and by effectively removing Miller and dropping its
claims against Debtor, UAS manifested an intent to continue performance
under the Loan Agreement. Finally, CHPL argued that if UAS’s claim was
barred, the bankruptcy court should dismiss the involuntary bankruptcy
case.
The bankruptcy court issued a tentative ruling stating its intention to
grant Trustee’s motion. At the hearing, the bankruptcy court focused on
whether Debtor was a “party” in the Georgia Action and whether the state
court had personal jurisdiction for purposes of claim preclusion. The court
determined that CHPL’s request to dismiss the case should be filed in the
6 main case, not an adversary proceeding, and denied the request without
prejudice. The bankruptcy court then requested additional briefing on the
issues of whether Georgia law required personal jurisdiction for purposes
of claim preclusion and whether Debtor was served with the summons and
complaint such that the state court had personal jurisdiction.
After the parties submitted their briefs, the bankruptcy court entered
a comprehensive written order granting summary judgment in favor of
Trustee, and entered judgment disallowing the claim of UAS and its
assignee, CHPL. The court determined that Miller was Debtor’s registered
agent and therefore, under Georgia law, actual service on Miller was
sufficient to confer personal jurisdiction over Debtor and make it a party to
the case. CHPL timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158(a).
ISSUE
Whether the bankruptcy court erred by granting Trustee’s summary
judgment motion.
STANDARD OF REVIEW
We review the bankruptcy court’s grant of summary judgment de
novo. Lewis v. Kaelin (In re Cresta Tech. Corp.), 583 B.R. 224, 227 (9th Cir. BAP
2018). We also review the bankruptcy court’s application of claim
7 preclusion de novo. Alonso v. Summerville (In re Summerville), 361 B.R. 133,
139 (9th Cir. BAP 2007). Under a de novo review, we look at the matter
anew, giving no deference to the bankruptcy court’s determinations. In re
Cresta Tech. Corp., 583 B.R. at 227.
DISCUSSION
Civil Rule 56(a), made applicable by Rule 7056, provides that
summary judgment is appropriate when “there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of
law.” We must view the evidence in the light most favorable to the
non-moving party and draw all justifiable inferences in favor of the
non-moving party. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d
1119, 1125 (9th Cir. 2014) (citing Cty. of Tuolumne v. Sonora Cmty. Hosp., 236
F.3d 1148, 1154 (9th Cir. 2001); Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986)).
CHPL argues that the bankruptcy court erred by granting summary
judgment in favor of Trustee and by denying its motion for summary
judgment, because under Georgia law, UAS and CHPL were not barred by
claim preclusion from asserting their claim against Debtor.
The Full Faith and Credit Act, 28 U.S.C. § 1738, requires bankruptcy
courts to give the same preclusive effect to a state court judgment that the
judgment would have in the courts of the state in which it was rendered.
Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 369 (1996). Georgia law
8 therefore determines the preclusive effect of the dismissal in the Georgia
Action. If Georgia law precludes UAS from filing a subsequent suit against
Debtor based on the Loan Agreement, UAS’s claim in the bankruptcy case
must be disallowed.
Under Georgia law, a voluntary dismissal with prejudice “operates as
an adjudication upon the merits and bars the right to bring another action
on the same claim.” Fowler v. Vinyard, 405 S.E.2d 678, 680 (Ga. 1991)
(citations omitted). An order dismissing a defendant with prejudice is not a
judgment, but it does adjudicate the “non-liability of that defendant to the
plaintiff.” Hedquist v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 528 S.E.2d
508, 510 (Ga. 2000).
“As far as the parties involved in the voluntary dismissal with
prejudice are concerned, the dismissal constitutes a final disposition of the
action so dismissed, and [claim preclusion] will bar any attempt . . . to
litigate the dismissed claim against the dismissed party under another
guise.” Id. at 511. Dismissal with prejudice bars relitigation of “all questions
which might have been litigated in the action and is a final disposition,
barring the right to bring another action on the same claim.” Hutcheson
Med. Ctr. v. Scealf, 422 S.E.2d 20, 22 (Ga. App. 1992).
The record is clear that UAS voluntarily dismissed all claims against
Debtor with prejudice. Those claims included contract claims based on the
Loan Agreement. Therefore it is barred under Georgia law from relitigating
9 those claims.
CHPL argues that because voluntary dismissals are not required to
be made with prejudice under Ga. Code § 9-11-41, UAS’s dismissal with
prejudice was a mistake. However, a voluntary dismissal with prejudice
bars relitigation of claims even if the plaintiff could have dismissed
without prejudice. Dep’t of Transp. v. Revco Disc. Drug Ctrs., Inc., 746 S.E.2d
631, 634 (Ga. App. 2013) (“[A] simple mistake by a party as to the . . . legal
result of an act which he performs, is no ground for either defensive or
affirmative relief.”) (citation omitted).
A. The Dismissal Order In the Georgia Action Is Sufficient For Purposes of Claim Preclusion
Three elements must be satisfied to apply claim preclusion under
Georgia law: (1) an identity of the cause of action; (2) an identity of the
parties or their privies; and (3) a previous adjudication on the merits by a
court of competent jurisdiction. Coen v. CDC Software Corp., 816 S.E.2d 670,
675 (Ga. 2018).
CHPL argues that Debtor was not served with the summons and
complaint and did not appear in the Georgia Action, and therefore, it was
not a “party,” and the state court was not a “court of competent
jurisdiction” because it lacked personal jurisdiction over Debtor.
10 1. The Dismissal Order Bars UAS From Asserting Claims Against Debtor Regardless of Whether Debtor Was Served In the Georgia Action
CHPL argues that Georgia law requires service on a defendant in
order for a judgment entered against that defendant to support claim
preclusion. But, because a dismissal with prejudice bars the plaintiff and
not the defendant, it is not evident that Georgia law would require the
defendant to be served or make an appearance in order to make the
dismissal effective against the plaintiff in a future action.
Voluntary dismissals are governed by Ga. Code § 9-11-41 and can be
effected either through a notice or stipulation filed by the plaintiff, or by a
court order. Ga. Code § 9-11-41(a)(1)-(2). Although voluntary dismissals
under § 9-11-41 may be with or without prejudice, the filing of a second
notice of dismissal operates as an adjudication on the merits and is with
prejudice. Ga. Code § 9-11-41(a)(3). Regardless of under which provision of
§ 9-11-41(a) the dismissal is made, “a dismissal ‘with prejudice’ should
have the same effect.” Fowler, 405 S.E. 2d at 680.
Under the “two-dismissal rule,” when a plaintiff files a second notice
of dismissal, “the controlling factor is the [second] voluntary dismissal of
the same cause of action rather than the named party defendants.” Walker
v. Mecca, 739 S.E.2d 450, 451 (Ga. App. 2013) (quoting Belco Elec. v. Bush, 420
S.E. 2d 602 (Ga. App. 1992) (applying prior version of the statute)). A
11 second notice of dismissal bars the plaintiff from asserting the dismissed
claims regardless of whether the defendant was served, whether the court
had personal jurisdiction over the defendant, or even whether the
defendant was named in the complaint. See id. at 451; Harris v. Sampson, 290
S.E.2d 165, 167 (Ga. App. 1982) (“[I]t is the mere filing of the complaint
followed by a voluntary dismissal that brings the statute into play, not that
a defendant must be served and be forced to answer or suffer default.”).
The result should be no different where the dismissal with prejudice
is by court order on plaintiff’s motion rather than by the two-dismissal
rule. See Fowler, 405 S.E.2d at 680 (reasoning that a voluntary dismissal with
prejudice operates as res judicata whether by order of the court or by
statute under the two-dismissal rule).
But, even if Georgia law were to require service on a defendant in
order to make the voluntary dismissal with prejudice binding on the
plaintiff, improper service and personal jurisdiction are affirmative
defenses which are waivable by the defendant. See Burch v. Dines, 600
S.E.2d 374, 377 n.5 (Ga. App. 2004) (lack of personal jurisdiction based on
defective process and insufficient service may be waived); Ga. Code § 9-11-
8(c); (12)(1)(B).
If Debtor was not served and did not waive its affirmative defenses, it
retains those defenses and the ability to waive them. Focus Healthcare Med.
Ctr., Inc. v. O’Neal, 558 S.E.2d 818, 820 (Ga. App. 2002). Until such time as
12 the court rules on an asserted affirmative defense, the action may be
voidable, but it is not void. Hedquist, 528 S.E.2d at 512; see also Harris, 290
S.E.2d at 167 (“The mere fact that a recovery may not have been authorized
under the dismissed actions does not render the suit void where the trial
court had jurisdiction of the cause of action.”).
If Debtor was not served in the Georgia Action as CHPL argues, then
Debtor, and not CHPL, retains the right to assert—or waive—the defenses
of insufficient service and lack of personal jurisdiction.
2. Service Was Effective On Debtor and the State Court Had Jurisdiction
Although service on Debtor was unnecessary for the state court to
enter an order dismissing the claims with prejudice, the bankruptcy court
did not err by determining that Debtor was served under Georgia law.
CHPL argues that Debtor was not served because (1) service on
Miller did not effect service on Debtor under the holdings of Chrison v. H &
H Interiors, Inc., 500 S.E.2d 41 (Ga. App. 1998) and All Risk Insurance Agency,
Inc. v. Rockbridge Sanitation Co., 319 S.E.2d 527 (Ga. App. 1984); and (2) the
summons was not directed to Debtor and Debtor never received notice of
service of process.
Under Georgia law, service on a corporation can be made by
delivering a copy of the summons and complaint to the registered agent of
the entity. Ga. Code § 9-11-4(e)(1). The record is clear that Miller was
13 served at his personal address and at the time of service, he was Debtor’s
registered agent. Miller’s personal residence was the proper address for
serving Debtor’s registered agent.
Neither Chrison nor All Risk Insurance required the bankruptcy court
to determine that service was not proper. In Chrison, there was no listing
with the Secretary of State and the summons was left with a regional
manager at the entity’s place of business in Tennessee. 500 S.E.2d at 42. As
a result, the court found that the entity was not served at all. Id. at 45 n.7. In
All Risk Insurance, the individual was served at his address in North
Carolina, but because the service address for the corporate defendant’s
agent was in Georgia, service on the individual was not effective as to the
corporation. 319 S.E.2d at 528.
The bankruptcy court also properly determined that despite the fact
that the process server’s affidavit indicated that only Miller and not Debtor
was served, “it is the fact of service which confers jurisdiction, and not the
return, and the latter may be amended to speak the truth.” Montgomery v.
USS Agri-Chem. Div., 270 S.E.2d 362, 365 (Ga. App. 1980). If “the fact of
service appears, and the officer’s return is irregular or incomplete, it should
not be treated as no evidence, but rather as furnishing defective proof of
the fact of service.” Id. at 364. The process server’s affidavit evidences the
fact of service on Debtor’s registered agent at the address listed with the
Secretary of State. This is sufficient to confer jurisdiction under Georgia law
14 and to provide Debtor with notice of the Georgia Action.
B. The Bankruptcy Claim Is the Same Claim as the Georgia Action
CHPL argues that the bankruptcy claim is not identical to the claim
in the Georgia Action because UAS amended its complaint to remove
Debtor before serving it on Miller. CHPL contends that unlike a claim in
bankruptcy, the Georgia Action was based on an anticipatory breach which
required an absolute and unqualified refusal to perform. CHPL reasons
that once it became clear to UAS that Frisbee intended for Debtor to
perform under the Loan Agreement, UAS amended the complaint to drop
its claims against Debtor.
For purposes of claim preclusion under Georgia law, a cause of action
is “‘the entire set of facts which give rise to an enforceable claim,’ with
special attention given to the ‘wrong’ alleged.” Coen, 816 S.E.2d at 675
(quoting Morrison v. Morrison, 663 S.E.2d 714, 719 (Ga. 2008)). If the
operative facts required to state a claim in the prior case encompass the
operative facts required to state a claim in the second case, the causes of
action are identical. Id.
In the Georgia Action, UAS alleged that Debtor and Miller breached
the Loan Agreement by repudiating the contract and by failing to pay
according to its terms. Under Georgia law, repudiation of a contract gives
the innocent party an election of remedies—either keep the contract in
force or immediately sue for damages. Szabo Assocs. Inc. v. Peachtree-
15 Piedmont Assocs., 234 S.E.2d 119, 120 (Ga. App. 1977). UAS immediately
sued, thereby electing to treat the repudiation as an anticipatory breach of
contract.
It is immaterial that UAS amended its complaint because claim
preclusion prevents relitigation of claims “which have already been
adjudicated, or which could have been adjudicated” between the same
parties. Crowe v. Elder, 723 S.E.2d 428, 430 (Ga. 2012). The order dismissing
Debtor from the Georgia Action expressly stated that “all claims” against
Debtor were dismissed with prejudice.
The “wrong” alleged by UAS in the Georgia Action was Debtor’s
failure to pay under the Loan Agreement. Debtor’s obligation to pay under
the Loan Agreement is precisely what UAS asserted in its bankruptcy
claim. Because the “entire set of facts” giving rise to UAS’s claim in the
Georgia Action encompassed Debtor’s liability under the Loan Agreement,
the causes of action are identical for purposes of claim preclusion.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s
order granting Trustee’s motion for summary judgment and disallowing
CHPL’s claim.