1 WO 2 3 4 5
9 Chimyere McCall, et al., No. CV-19-05126-PHX-SMB
Plaintiffs, 11 v. 12
13 Damon Charles Williams, et al.,
14 Defendants. 15
16 Pending before the Court is Plaintiffs/Counterdefendants’, Chimyere McCall and 17 Monroe McCall’s (“the McCalls”), Motion to Dismiss Defendants/Counterplaintiffs’ 18 Counterclaim. (Doc. 51.) Defendants/Counterplaintiffs, Damon and Zene Williams (“the 19 Williams”), responded, (Doc. 52.), and the McCalls replied. (Doc. 53.) Despite the parties’ 20 request, the Court elects to rule without oral argument. See L.R. Civ 7.2(f). 21 I. BACKGROUND 22 This action comes to the Court by way of removal under 28 U.S.C. § 1446(a). The 23 original action was filed in Maricopa County Superior Court on March 19, 2019. (Doc. 1- 24 1 at 11.) This action was filed by the McCalls seeking declaratory relief and damages from 25 the Williams. (Id. at 12.) The McCalls allege three causes of action including two claims 26 for relief under A.R.S. § 33-420 as well as a claim of racketeering based on A.R.S. § 13- 27 2314.04. The parties’ legal disputes run back more than a decade. Indeed, the claims and 28 1 counterclaims in this case cannot be understood without an explanation of the past 2 interactions and litigation involving the McCalls and the Williams. 3 United Solutions Corporation (“U.S.C.”) was a former Washington corporation that 4 did business in Arizona. (Doc. 1-1 at 13; Doc. 48 at 2-3.) From the time of its formation in 5 2006 until its dissolution in 2011, U.S.C.’s sole shareholder and officer was Damon Charles 6 Williams. (Id.) On June 25, 2009, U.S.C. obtained a judgment against the McCalls from 7 the Maricopa County Superior Court in the amount of $1,043,375.00 plus an additional 8 $2,451.81 in costs. (Doc. 1-1 at 38.) The McCalls’, shortly after the judgment was entered, 9 left Arizona and moved to Washington County Arkansas before the judgement could be 10 collected. (Id. at 14.) In 2010, U.S.C. filed an action in Arkansas state court seeking to 11 domesticate its Arizona judgement against the McCalls. (Doc. 1-1 at 14; Doc. 48 at 3.) 12 On November 4, 2010, the McCalls filed a petition for Chapter 7 bankruptcy 13 protection in the United States Bankruptcy Court for the Western District of Arkansas.1 14 See 5:10-bk-75819. Several months later, on February 7, 2011, U.S.C. filed an adversary 15 complaint in the bankruptcy proceeding seeking to have its judgement classified as a non- 16 dischargeable debt. See 5:11-ap-07015. However, prior to any hearing on whether the 17 judgement was dischargeable, U.S.C.’s counsel withdrew, citing nonpayment of fees and 18 a cessation of communications by U.S.C. as cause. (Id.) No officer of U.S.C. nor any 19 subsequent counsel for U.S.C. made any further appearance in the bankruptcy proceeding. 20 (Id.) Accordingly, on September 29, 2011, Judge Barry of the United States Bankruptcy 21 Court for the Western District of Arkansas entered an order stating “[U.S.C.’s] case is 22 dismissed with prejudice under Rule 41(b) FRCP, made applicable through Rule 7041 23 FRBP, for failure to prosecute its case…such dismissal operates as an adjudication on the 24 merits. The claim of [U.S.C.], if any, is dischargeable.” (Id.) The records of the McCalls’ 25 proceedings in bankruptcy do not reveal any additional involvement or challenges by 26 U.S.C. or the Williams. Eventually on October 17, 2011, the bankruptcy court granted a
27 1 As will be discussed below, the Court takes judicial notice of underlying state court 28 action, bankruptcy proceedings in the United States Bankruptcy Court for the Western District of Arkansas, and the related Judgment Liens recorded by Maricopa County. 1 discharge of the McCalls’ debts, including the McCalls’ judgement debt to U.S.C. (Id.) 2 More than six years later, on March 23, 2018, the Williams created a lien against all 3 of the McCalls’ Arizona real property by filing an “Affidavit for Renewal of Judgement” 4 with the Maricopa County Recorder and attaching a copy of the original 2009 judgement 5 for U.S.C. See Doc. No. 2018-0218732. The McCalls responded to the affidavit by filing 6 this action in Maricopa County Superior Court. (Doc. 1-1 at 11.) The McCalls’ complaint 7 sought to have the Williams’ lien declared invalid, sought damages for the Williams’ 8 alleged filing of a wrongful lien, and sought to enforce a private right of action against the 9 Williams for racketeering. (Id. at 15-18.) 10 The Williams removed the case to this Court where they answered the Complaint 11 and asserted several counterclaims at issue in this motion. (Doc. 1; Doc. 48.) The 12 Counterclaim contains seven claims and an affirmative defense of recoupment that stem 13 from Ms. McCall’s former employment with U.S.C., as well as one claim for “abuse of 14 process.” (Doc. 48 at 13-23.) The McCalls responded with a Motion to Dismiss under Rule 15 12(b)(6), arguing the Williams’ counterclaims were a reiteration of the U.S.C. complaint 16 against the McCalls that had resulted in the original 2009 judgement and as such were 17 barred by res judicata. (Doc. 51.) In the alternative, the McCalls argued that many of the 18 counterclaims made by the Williams pertain the events that occurred well beyond the 19 statute of limitations for bringing a claim. (Id.) Finally, the McCalls argue that while neither 20 res judicata nor the applicable statute of limitations bars the Williams’ abuse of process 21 claim, the Williams have nonetheless failed to state a claim. (Id.) The Williams have 22 responded asserting that the McCalls’ motion is untimely, that neither res judicata nor any 23 statute of limitations bars their action, and that they have adequately stated a claim for 24 abuse of process. (Doc. 52.) 26 To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet 27 the requirements of Rule 8(a)(2). See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). 28 Rule 8(a)(2) requires a “short and plain statement of the claim showing that the pleader is 1 entitled to relief,” so that the defendant has “fair notice of what the . . . claim is and the 2 grounds upon which it rests.” Fed. R. Civ. P. 8(a)(2); Twombly, 550 U.S. at 555 (quoting 3 Conley v. Gibson, 355 U.S. 41, 47 (1957)). Dismissal under Rule 12(b)(6) “can be based 4 on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a 5 cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 6 1988). A complaint that sets forth a cognizable legal theory will survive a motion to 7 dismiss if it contains sufficient factual matter, which, if accepted as true, states a claim to 8 relief that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 9 Twombly, 550 U.S. at 570). Facial plausibility exists if the pleader sets forth “factual 10 content that allows the court to draw the reasonable inference that the defendant is liable 11 for the misconduct alleged.” Id.
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1 WO 2 3 4 5
9 Chimyere McCall, et al., No. CV-19-05126-PHX-SMB
Plaintiffs, 11 v. 12
13 Damon Charles Williams, et al.,
14 Defendants. 15
16 Pending before the Court is Plaintiffs/Counterdefendants’, Chimyere McCall and 17 Monroe McCall’s (“the McCalls”), Motion to Dismiss Defendants/Counterplaintiffs’ 18 Counterclaim. (Doc. 51.) Defendants/Counterplaintiffs, Damon and Zene Williams (“the 19 Williams”), responded, (Doc. 52.), and the McCalls replied. (Doc. 53.) Despite the parties’ 20 request, the Court elects to rule without oral argument. See L.R. Civ 7.2(f). 21 I. BACKGROUND 22 This action comes to the Court by way of removal under 28 U.S.C. § 1446(a). The 23 original action was filed in Maricopa County Superior Court on March 19, 2019. (Doc. 1- 24 1 at 11.) This action was filed by the McCalls seeking declaratory relief and damages from 25 the Williams. (Id. at 12.) The McCalls allege three causes of action including two claims 26 for relief under A.R.S. § 33-420 as well as a claim of racketeering based on A.R.S. § 13- 27 2314.04. The parties’ legal disputes run back more than a decade. Indeed, the claims and 28 1 counterclaims in this case cannot be understood without an explanation of the past 2 interactions and litigation involving the McCalls and the Williams. 3 United Solutions Corporation (“U.S.C.”) was a former Washington corporation that 4 did business in Arizona. (Doc. 1-1 at 13; Doc. 48 at 2-3.) From the time of its formation in 5 2006 until its dissolution in 2011, U.S.C.’s sole shareholder and officer was Damon Charles 6 Williams. (Id.) On June 25, 2009, U.S.C. obtained a judgment against the McCalls from 7 the Maricopa County Superior Court in the amount of $1,043,375.00 plus an additional 8 $2,451.81 in costs. (Doc. 1-1 at 38.) The McCalls’, shortly after the judgment was entered, 9 left Arizona and moved to Washington County Arkansas before the judgement could be 10 collected. (Id. at 14.) In 2010, U.S.C. filed an action in Arkansas state court seeking to 11 domesticate its Arizona judgement against the McCalls. (Doc. 1-1 at 14; Doc. 48 at 3.) 12 On November 4, 2010, the McCalls filed a petition for Chapter 7 bankruptcy 13 protection in the United States Bankruptcy Court for the Western District of Arkansas.1 14 See 5:10-bk-75819. Several months later, on February 7, 2011, U.S.C. filed an adversary 15 complaint in the bankruptcy proceeding seeking to have its judgement classified as a non- 16 dischargeable debt. See 5:11-ap-07015. However, prior to any hearing on whether the 17 judgement was dischargeable, U.S.C.’s counsel withdrew, citing nonpayment of fees and 18 a cessation of communications by U.S.C. as cause. (Id.) No officer of U.S.C. nor any 19 subsequent counsel for U.S.C. made any further appearance in the bankruptcy proceeding. 20 (Id.) Accordingly, on September 29, 2011, Judge Barry of the United States Bankruptcy 21 Court for the Western District of Arkansas entered an order stating “[U.S.C.’s] case is 22 dismissed with prejudice under Rule 41(b) FRCP, made applicable through Rule 7041 23 FRBP, for failure to prosecute its case…such dismissal operates as an adjudication on the 24 merits. The claim of [U.S.C.], if any, is dischargeable.” (Id.) The records of the McCalls’ 25 proceedings in bankruptcy do not reveal any additional involvement or challenges by 26 U.S.C. or the Williams. Eventually on October 17, 2011, the bankruptcy court granted a
27 1 As will be discussed below, the Court takes judicial notice of underlying state court 28 action, bankruptcy proceedings in the United States Bankruptcy Court for the Western District of Arkansas, and the related Judgment Liens recorded by Maricopa County. 1 discharge of the McCalls’ debts, including the McCalls’ judgement debt to U.S.C. (Id.) 2 More than six years later, on March 23, 2018, the Williams created a lien against all 3 of the McCalls’ Arizona real property by filing an “Affidavit for Renewal of Judgement” 4 with the Maricopa County Recorder and attaching a copy of the original 2009 judgement 5 for U.S.C. See Doc. No. 2018-0218732. The McCalls responded to the affidavit by filing 6 this action in Maricopa County Superior Court. (Doc. 1-1 at 11.) The McCalls’ complaint 7 sought to have the Williams’ lien declared invalid, sought damages for the Williams’ 8 alleged filing of a wrongful lien, and sought to enforce a private right of action against the 9 Williams for racketeering. (Id. at 15-18.) 10 The Williams removed the case to this Court where they answered the Complaint 11 and asserted several counterclaims at issue in this motion. (Doc. 1; Doc. 48.) The 12 Counterclaim contains seven claims and an affirmative defense of recoupment that stem 13 from Ms. McCall’s former employment with U.S.C., as well as one claim for “abuse of 14 process.” (Doc. 48 at 13-23.) The McCalls responded with a Motion to Dismiss under Rule 15 12(b)(6), arguing the Williams’ counterclaims were a reiteration of the U.S.C. complaint 16 against the McCalls that had resulted in the original 2009 judgement and as such were 17 barred by res judicata. (Doc. 51.) In the alternative, the McCalls argued that many of the 18 counterclaims made by the Williams pertain the events that occurred well beyond the 19 statute of limitations for bringing a claim. (Id.) Finally, the McCalls argue that while neither 20 res judicata nor the applicable statute of limitations bars the Williams’ abuse of process 21 claim, the Williams have nonetheless failed to state a claim. (Id.) The Williams have 22 responded asserting that the McCalls’ motion is untimely, that neither res judicata nor any 23 statute of limitations bars their action, and that they have adequately stated a claim for 24 abuse of process. (Doc. 52.) 26 To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet 27 the requirements of Rule 8(a)(2). See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). 28 Rule 8(a)(2) requires a “short and plain statement of the claim showing that the pleader is 1 entitled to relief,” so that the defendant has “fair notice of what the . . . claim is and the 2 grounds upon which it rests.” Fed. R. Civ. P. 8(a)(2); Twombly, 550 U.S. at 555 (quoting 3 Conley v. Gibson, 355 U.S. 41, 47 (1957)). Dismissal under Rule 12(b)(6) “can be based 4 on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a 5 cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 6 1988). A complaint that sets forth a cognizable legal theory will survive a motion to 7 dismiss if it contains sufficient factual matter, which, if accepted as true, states a claim to 8 relief that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 9 Twombly, 550 U.S. at 570). Facial plausibility exists if the pleader sets forth “factual 10 content that allows the court to draw the reasonable inference that the defendant is liable 11 for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of action, 12 supported by mere conclusory statements, do not suffice.” Id. 13 In ruling on a Rule 12(b)(6) motion to dismiss, the well-pled factual allegations are 14 taken as true and construed in the light most favorable to the nonmoving party. Cousins v. 15 Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). However, legal conclusions couched as 16 factual allegations are not given a presumption of truthfulness, and “conclusory allegations 17 of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto 18 v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). A court ordinarily may not consider evidence 19 outside the pleadings in ruling on a Rule 12(b)(6) motion to dismiss. See United States v. 20 Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). However, courts may “consider certain [other] 21 materials—documents attached to the complaint, documents incorporated by reference in 22 the complaint, or matters of judicial notice—without converting the motion to dismiss into 23 a motion for summary judgment.” (Id. at 908). Accordingly, a court may consider certain 24 documents satisfying Federal Rule of Evidence 201.2
25 2 Additionally, and at a minimum, judicial notice of the Judgment Liens is also appropriate 26 under the incorporation-by-reference doctrine, allowing a court to consider “certain documents as though they are part of the complaint itself.” Khoja v. Orexigen Therapeutics, 27 Inc., 899 F.3d 988, 1002 (9th Cir. 2018); see also Ritchie, 342 F.3d at 907 (permitting 28 judicial notice “if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff’s claim[s].”); (Doc. 1-1 at 11-21) (incorporating the Judgment 2 A. Judicial Notice of the Underlying Bankruptcy Judgment 3 The McCalls request the Court take judicial notice pursuant to Rule 201 of the 4 underlying state court action, bankruptcy proceedings in the United States Bankruptcy 5 Court for the Western District of Arkansas, and the related Judgment Liens recorded by 6 Maricopa County. (Mot at 4; see also Doc. 48 at ⁋⁋ 59-92.) Under Rule 201, a court may 7 judicially notice a fact “not subject to reasonable dispute because it (1) is generally known 8 within the trial court’s territorial jurisdiction; or (2) can be accurately and readily 9 determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 10 201(b). “A court may take judicial notice of matters of public record.” Khoja, 899 F.3d at 11 999. As such, judgments and other court documents are proper subjects of judicial notice. 12 See e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007). But “[j]ust because 13 the document itself is susceptible to judicial notice does not mean that every assertion of 14 fact within that document is judicially noticeable for its truth.” Khoja, 899 F.3d at 999. 15 Thus, a court can take judicial notice of another court’s opinion “not for the truth of the 16 facts recited therein, but for the existence of the opinion, which is not subject to reasonable 17 dispute over its authenticity.” Lee v. City of Los Angeles, 250 F.3d 668, 689-90 (9th Cir. 18 2001). 19 The McCalls’ request for judicial notice largely concerns documents of public 20 record and court filings. These documents are not “subject to reasonable dispute” because 21 they are “capable of accurate and ready determination by resort to sources whose accuracy 22 cannot reasonably be questioned.” Fed. R. Evid. 201. The Williams do not challenge the 23 authenticity of the documents provided, nor do they oppose the McCalls’ request that the 24 Court take judicial notice. As such the McCalls’ request for judicial notice is granted. 25 B. Timeliness of Counterdefendants’ Motion 26 The Williams argue as a threshold matter that the McCalls’ Motion to Dismiss is 27 untimely under Local Rule of Civil Procedure 7.2(c) and should be dismissed. Rule 7.2 28 Liens). 1 governs the District of Arizona’s rules and procedures for responding to motions in civil 2 cases. However, while this rule creates a deadline for responding to a motion, it does not 3 create or control the deadline by which a party must file an answer to a counterclaim. The 4 deadline for replying to a counterclaim is governed by Federal Rule of Civil Procedure 5 12(a)(1)(B) which states that, “A party must serve an answer to a counterclaim or 6 crossclaim within 21 days after being served with the pleading that states the 7 counterclaim…” Here, the Williams asserted their Counterclaim in their Amended Answer 8 to the McCalls’ complaint, (Doc. 48.), filed on May 11, 2020. The McCalls filed their 9 Motion to Dismiss (Doc. 51) on June 1, 2020. Thus, the motion was filed within the 21- 10 day deadline and is timely. 11 C. Res Judicata 12 The McCalls assert that the Williams’ first seven claims and affirmative defense of 13 recoupment are barred by res judicata because the claims were resolved during the 2009 14 litigation between the parties. The McCalls note that “beginning in Paragraph 73 and 15 continuing through Paragraph 134, the Counterclaim simply re-states the claims from the 16 original [2009] Lawsuit.” The sole difference from the original suit is that the Williams 17 have substituted their name in place of U.S.C. 18 “[C]laim preclusion and issue preclusion…are collectively referred to as “res 19 judicata.” Taylor v. Sturgell, 553 U.S. 880, 892 (2008). Under claim preclusion, a final 20 judgement forecloses successive litigation of the same claim whether or not the subsequent 21 litigation raises the same issues as the earlier suit. Id. This doctrine “protect[s] against ‘the 22 expense and vexation attending multiple lawsuits, conserv[es] judicial resources, and 23 foste[rs] reliance on judicial action by minimizing the possibility of inconsistent 24 decisions.’” Id (quoting Montana v. United States, 440 U.S. 147, 153-54 (1979)); see also 25 Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1160 (9th Cir. 2002) (“Preclusion 26 doctrine…requir[es] that all related claims be brought together or forfeited...”); Tahoe- 27 Sierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 322 F.3d 1064, 1077-78 (9th 28 Cir. 2003) (claim preclusion “bars relitigation of all grounds of recovery that were asserted, 1 or could have been asserted, in a previous action…It is immaterial whether the 2 claims…were actually pursued…the relevant inquiry is whether they could have been 3 brought” (quoting United States ex rel. Barajas v. Northrop Corp., 147 F.3d 905, 909 (9th 4 Cir. 1998)). “The party asserting a claim preclusion argument ‘must carry the burden of 5 establishing all necessary elements.’” Garity v. APWU Nat'l Labor Org., 828 F.3d 848, 6 855 (9th Cir. 2016) (quoting Taylor, 553 U.S. at 907). 7 Claim preclusion, “applies when there is (1) an identity of claims; (2) a final 8 judgment on the merits; and (3) identity or privity between the parties.” Garity, 828 F.3d 9 at 855 (quoting Cell Therapeutics, Inc. v. Lash Grp. Inc., 586 F.3d 1204, 1212 (9th Cir. 10 2009)). The Court generally finds privity where corporate relationships are sufficiently 11 close to establish substantial identity of interests between parties. Irwin v. Mascott, 370 12 F.3d 924, 929 (9th Cir. 2004). For example, “when a person owns most or all of the shares 13 in a corporation and controls the affairs of the corporation, it is presumed that in any 14 litigation involving that corporation the individual has sufficient commonality of interest 15 [to support a finding of privity].” In re Gottheiner, 703 F.2d 1136, 1140 (9th Cir. 1983) 16 (citing Sparks Nugget, Inc. v. Commissioner, 458 F.2d 631, 639 (9th Cir. 1972)); see also 17 Irwin v. Mascott, 370 F.3d 924, 930 (9th Cir. 2004). 18 The Williams do not seem to dispute the common factual basis of the Counterclaim 19 filed in this action and the claims filed by U.S.C. in 2009. Nor, do the Williams dispute 20 that the 2009 claims were adjudicated to a final judgment. Instead, the Williams argue 21 claim preclusion does not apply because they are not in privity with their former 22 corporation. The Williams argue they are not suing as representatives or assignees of 23 U.S.C. Instead, they allege their claims stem from “direct injuries [versus derivative 24 injuries] to Williams [sic] shareholder interest of United Solutions Corp.” This assertion 25 raises its own issues as to the validity of the Williams’ Counterclaim,3 but even taking the 26 3The Court’s resolution of the issue of privity make in-depth analysis superfluous but 27 suffice to say there are grave doubts as to whether the causes of action alleged by the 28 Williams are the proper subject of a “direct” shareholder suit. See, e.g., Safranski v. Duma Video, Inc., No. 47716-5-II, 2017 Wash. App. LEXIS 137 *5 (Ct. App. Jan. 24, 2017) 1 statement at face value, it does not defeat privity. The Ninth Circuit has previously found 2 that privity existed between a corporation and its active controlling shareholder. 3 Gottheiner, 703 F.2d at 1140. The Williams’ Amended Answer admits that Damon Charles 4 William was both the sole shareholder and sole officer of U.S.C. See (Doc. 48 at 2-3.) This 5 close corporate relationship demonstrates sufficient commonality of interest between 6 U.S.C. and the Williams to find they are in privity. Accordingly, the Williams’ claims for 7 breach of duties, breach of the covenant of good faith and fair dealing, intentional 8 interference with a contract, misappropriation of trade secrets, theft, conversion, unfair 9 competition, and aiding and abetting are subject to claim preclusion and barred by res 10 judicata. 11 D. Recoupment 12 The Williams have failed to adequately plead recoupment. Equitable recoupment is 13 “a defendant's right to seek reduction of damages based on the amount of a related claim.” 14 City of St. Paul v. Evans, 344 F.3d 1029, 1034 n.7 (9th Cir. 2003). A claim for recoupment 15 may be brought to defeat or reduce a claim arising out of the same transaction even if an 16 independent suit on the claim asserted would otherwise be barred by the statute of 17 limitations. Strickland v. Truckers Express, Inc., No. CV 95-62-M-JCL, 2006 U.S. Dist. 18 LEXIS 101644 *12-13 (D. Mont. Oct. 30, 2006) (citing Klemens v. Air Line Pilots 19 Association, International, 736 F.2d 491, 501 (9th Cir. 1984)). This is because courts will 20 distinguish between “seeking affirmative recovery and having ‘adjudicated questions 21 raised by way of defense.’” City of Saint Paul, 344 F.3d at 1034 (quoting U.S. v. Western 22 Pacific Railroad Co., 352 U.S. 59, 73 (1956)). Notably, the defense of recoupment only 23 applies to countervailing claims arising from the same transaction and is available strictly 24 for the purpose of abatement or reduction. Aalfs v. Wirum (In re Straightline Invs.), 525
25 (“Even a shareholder who owns all or most of the stock, but who suffers damages only 26 indirectly as a shareholder, cannot sue as an individual.” (quoting Sabey v. Howard Johnson & Co., 5 P.3d 730, 735 (2000)). Also, it is rather anomalous for the Williams to 27 assert that Zene Williams is suing based on “direct injuries…to [his] shareholder interest” 28 when they have admitted in their answer that Damon Williams was U.S.C.’s only shareholder. (Doc. 48 at 2.) 1 F.3d 870, 882 (9th Cir. 2008) (citing Newbery Corp. v. Fireman's Fund Ins. Co., 95 F.3d 2 1392, 1400 (9th Cir. 1996)). 3 The Ninth Circuit has adopted the “logical relationship” test from Moore v. New 4 York Cotton Exchange, 270 U.S. 593 (1926), as the standard for determining if a 5 recoupment claim arises from the same transaction.4 Newbery, 95 F.3d at 1402. “In Moore, 6 the Court stated that ‘‘transaction’ is a word of flexible meaning. It may comprehend a 7 series of many occurrences, depending not so much upon the immediateness of their 8 connection as upon their logical relationship.’” Id. (quoting Moore, 270 U.S. at 610). The 9 typical situation in which equitable recoupment can be invoked involves a credit and debt 10 arising out of a transaction for the same goods or services. Id. (quoting University Medical 11 Center v. Sullivan (In re University Medical Center), 973 F.2d 1065 (3rd Cir. 1992)). 12 In order to assert equitable recoupment, the claim must arise from the same 13 transaction as the underlying suit in which it is asserted. Here, the McCalls’ underlying suit 14 is not based on the same transaction as the Williams’ claim in recoupment. The Williams’ 15 recoupment claim is based on the McCalls’ actions during the parties’ employment 16 relationship in 2006 and 2007. The McCalls’ claims do not stem from their employment 17 relationship, but from the Williams’ acts to create an allegedly wrongful lien against the 18 McCalls’ property in 2019. Because the recoupment claim is not based on the same acts as 19 the underlying lawsuit, it must fail.5 20 E. Abuse of Process Claim 21 The Williams have also asserted a counterclaim alleging that the McCalls’ suit 22 against them “amounts to a frivolous lawsuit and an abuse of process.” Arizona courts have 23 4 Note, however, the “logical relationship” test does not apply to proceedings in 24 bankruptcy, where the Court has established a stricter standard for applying the doctrine. Newbery, 95 F.3d at 1403 (“the district court…did not err by applying Moore's ‘logical 25 relationship’ test. However,…courts should apply the recoupment doctrine in bankruptcy 26 cases only when ‘it would . . . be inequitable for the debtor to enjoy the benefits of that transaction without meeting its obligations.’”). 27 5 Because of the Court’s resolution on the question of claim preclusion it is unnecessary to 28 resolve the parties’ argument regarding the applicable statute of limitations for the Williams’ counterclaims. 1 explained that “[t]he elements of an abuse-of-process claim are ‘(1) a willful act in the use 2 of judicial process; (2) for an ulterior purpose not proper in the regular conduct of the 3 proceedings.’” Crackel v. Allstate Ins. Co., 208 Ariz. 252, 257 (App. 2004) (citing 4 Nienstedt v. Wetzel, 133 Ariz. 348, 353 (App. 1982). An ulterior purpose means “the 5 process has been used primarily to accomplish a purpose for which the process was not 6 designed.” Id. “In the context of this tort, Arizona interprets ‘process’ as encompassing 7 ‘the entire range of procedures incident to the litigation process.’” Id. (citing Nienstedt, 133 8 Ariz. at 352). Examples of improper purposes include when “one uses the litigation process 9 as a ‘form of coercion to obtain a collateral advantage, not properly involved in the 10 proceeding itself, such as the surrender of property or the payment of money, by the use of 11 the process as a threat or a club. There is, in other words, a form of extortion.’” Fappani v. 12 Bratton, 243 Ariz. 306, 311 (App. 2017) (quoting Morn v. City of Phoenix, 152 Ariz. 164, 13 168, 730 P.2d 873 (App. 1986)); see also Nienstedt, 133 Ariz. at 354 (listing examples such 14 as the use of subpoenas to exhaust opponent's resources or impose financial hardship, or 15 selectively assigning claims to create an inconvenient forum). The initiation of a lawsuit 16 alone is not enough to establish an abuse of process claim. See Joseph v. Markovitz, 27 17 Ariz. App. 122, 126 (1976). The claimant must show the accused’s primary motivation is 18 to use the judicial process in an unauthorized or improper manner. Crackel, 208 Ariz. at 19 259. As long as the process is used for the purpose for which it is intended, an ulterior 20 motive of gain or spite is not sufficient. Nienstedt, 133 Ariz. at 353 (quoting Restatement 21 (Second) of Torts § 682, Comment (b) (1977). 22 Though fairly unclear, the Williams’ abuse of process claim seems to argue that the 23 McCalls’ former Motion to Strike the Williams’ Affidavit of Judgment was made for the 24 improper purpose of attempting to avoid repeat bankruptcy proceedings. However, these 25 allegations fail to state a claim for abuse of process because the claim fails to allege any 26 plausible improper purpose. The sole “improper purpose” alleged by the Williams is that 27 the McCalls were attempting to avoid filing in the bankruptcy court. First off, it is unclear 28 how the McCalls’ even could have responded to an Affidavit of Renewal filed in Maricopa 1 County Superior Court other than by filing a motion in that same venue. Second off, even 2 indulging the Williams’ belief that the bankruptcy court was available, the McCalls 3 decision to select a different available forum is not improper. Finally, asking for an 4 Affidavit of Judgement to be struck cannot bring any collateral pressure on the Williams, 5 because the only result of such a is the one contemplated by law, removal of the document 6 struck. 7 As such, the Williams have failed to allege any improper purpose and their claim 8 for abuse of process is dismissed. 9 F. Leave to Amend 10 The well-settled law in the Ninth Circuit allows claimants leave to amend unless “it 11 is…‘absolutely clear’ that [the claimant] could not cure [the Counterclaim’s] deficiencies 12 by amendment.”. See Jackson v. Barnes, 749 F.3d 755, 767 (9th Cir. 2014) (citations 13 omitted); Lopez, 203 F.3d at 1131 (en banc) (holding a pro se litigant must be given leave 14 to amend “if it appears at all possible the plaintiff can correct the complaint’s defects); Fed. 15 R. Civ. P. 15(a)(2). The Court finds that amendment would be futile for the Williams’ 16 affirmative defense of recoupment because its factual basis is not related to the underlying 17 claim. Additionally, res judicata renders amendment futile as to every counterclaim other 18 than the Williams’ claim for abuse of process. Finally, amendment of the Williams’ abuse 19 of process would also be futile because filing a motion to strike the Williams’ Affidavit of 20 Judgement cannot create a collateral advantage sufficient to find an improper purpose. 21 G. The Williams’ Rule 60(b)(4) Motion 22 The Williams final argument in their Response to the McCalls’ Motion to Dismiss 23 raises a Rule 60(b) motion with the seeming objective of challenging the McCalls’ request 24 for judicial notice of the 2011 proceedings before the Bankruptcy Court of the Western 25 District of Arkansas. Rule 60(b) is a vehicle that allows a district court to correct its own 26 mistakes. Kingvision Pay-Per-View v. Lake Alice Bar, 168 F.3d 347, 350 (9th Cir. 1999). 27 But Rule 60(b) does not somehow create jurisdiction in this Court to overturn a final 28 judgement in Arkansas. Even ignoring this glaring error, the Williams motion is not timely. 1|| See Fed. R. Civ. P Rule 60(c). The Bankruptcy ruling discharging U.S.C.’s judgement 2|| against the McCalls occurred almost nine years ago. The Williams have presented no 3 || theory as to what event could excuse such a delay in requesting relief under Rule 60. || Accordingly, 6 IT IS ORDERED, that the McCalls’ Motion to Dismiss (Doc. 51) is granted. 7 Dated this 13th day of November, 2020. 8 9 — 1 ose i onorable Susan M, Brnovich United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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