NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS SEP 7 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In the Matter of: R&S ST. ROSE No. 15-15662
LENDERS, LLC,
D.C. No. 2:14-cv-00926-GMN
Debtor,
______________________________
MEMORANDUM*
BRANCH BANKING AND TRUST
COMPANY,
Plaintiff-Appellee,
v.
CREDITOR GROUP,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Nevada
Gloria M. Navarro, Chief Judge, Presiding
Argued and Submitted April 20, 2017
Resubmitted September 4, 2018
San Francisco, California
Before: THOMAS, Chief Judge, MURGUIA, Circuit Judge, and BAYLSON,**
District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Michael M. Baylson, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
This is an appeal from the District of Nevada’s reversal of a Bankruptcy
Court’s decision to dismiss a Proof of Claim on res judicata grounds. Appellant
seeks reversal of the District Court’s decision, and, by extension, reinstatement of
the Bankruptcy Court’s decision. We agree with the District Court that the Proof
of Claim is not barred from re-litigation, and find that the District Court correctly
reversed the Bankruptcy Court’s decision. Reviewing the district court’s
determination de novo, we AFFIRM.
I. Factual History
R&S St. Rose Lenders, LLC (“R&S”) was formed to enter a land-banking
arrangement with a real estate developer, Centex homes. R&S was to purchase
undeveloped land (“the Property”), and Centex was to have the option to buy that
land after one year. The managers of R&S formed another entity, St. Rose Lenders
(referred to herein as “Debtor”),1 in order to solicit funds from private investors to
cover a portion of the purchase price of the Property.
R&S secured funding to purchase the Property in part through two loans: (1)
a loan from Colonial Bank secured by a first-priority deed of trust against the
Property (“2005 Colonial DOT”) and (2) a promissory note payable to Debtor
secured by a deed of trust (“2005 Debtor DOT”). Centex later declined to exercise
its option to buy the property, so R&S secured another loan from Colonial in order
1
St. Rose Lenders borrowed funds from private lenders, including Robert E. Murdock, and
Eckley M. Keach, in order to cover part of the purchase price of the Property.
2
to retain the Property (“2007 Colonial DOT”). Using the funds from the 2007
Colonial DOT, R&S paid off the 2005 Colonial DOT only. R&S defaulted on the
2005 Debtor DOT and the 2007 Colonial DOT, and both Colonial and Debtor
moved to foreclose on the property. Simultaneously, Colonial filed an action in
Nevada State Court (“State Court Action”) asserting that the 2007 Colonial DOT
was superior to the 2005 Debtor DOT in priority. The judge in the State Court
Action put a temporary restraining order in place to prevent either party from
moving forward with the foreclosure proceedings, pending the outcome of the
State Court Action determining the priority of the two loans.
II. Procedural History
a. State Court Action
After Colonial Bank commenced the State Court Action, Colonial Bank
went out of business and the FDIC became its receiver. Branch Banking and Trust
Co. (“BB&T”) entered into a Purchase and Assumption Agreement to obtain the
assets of Colonial Bank. BB&T filed an Amended Complaint in place of Colonial
Bank in the State Court Action to pursue Colonial’s claims, asserting itself as
Colonial’s successor in interest. In its Amended Complaint, BB&T advanced six
causes of action to seek priority of the 2007 Colonial DOT over the 2005 Debtor
DOT: two declaratory judgment claims, one promissory estoppel claim, one unjust
enrichment claim, one claim of fraudulent misrepresentation, and one civil
3
conspiracy claim. The crux of the fraudulent misrepresentation and civil
conspiracy claims was BB&T’s allegation that the principals of R&S had
represented to Colonial Bank that they would re-convey the 2005 Debtor DOT so
that the 2007 Colonial DOT would be superior to the 2005 Debtor DOT. All six
claims sought the same remedy – an order establishing that the 2007 Colonial DOT
was superior in priority to the 2005 Debtor DOT so that BB&T could foreclose on
the property.
The parties agreed to first hold a non-jury trial on BB&T’s declaratory
judgment claims, and delay consideration of the fraudulent misrepresentation and
civil conspiracy claims. In June 2010, after a ten day trial on BB&T’s first four
claims, the Nevada trial court found in favor of Debtor. Murdock v. Rad, et al.,
No. A574852, 2010 WL 9564700 (Nev. Dist. Ct. June 18, 2010). Specifically, the
court held that the only evidence that BB&T submitted to demonstrate that it was
the successor in interest to Colonial, the Purchase and Assumption Agreement, was
insufficient for that purpose.
BB&T [ ] relied upon the language of the Purchase and Assumption
Agreement, and no other admissible evidence, documentary or testimonial.
The court hereby finds that [ ] the Purchase and Assumption Agreement was
not sufficient evidence, on its face, to establish that BB&T was assigned the
2007 Colonial Bank Deed of Trust.
Id. at 7. As a result of this factual finding, the trial court concluded that “BB&T
has not demonstrated that it has been assigned the interest in the 2007 Colonial
4
Bank Deed of Trust at issue and therefore has not shown it has the ability to assert
the claims . . . filed by Colonial Bank.” Id. at 25. Because BB&T had not met its
evidentiary burden to prove it was the successor in interest to Colonial, the trial
court held, BB&T could not assert Colonial’s claims. Following this holding,
BB&T filed a motion to voluntarily dismiss its fraudulent misrepresentation and
civil conspiracy claims, which the trial court granted, so that it could appeal the
trial court’s decision as a final order. On appeal, in May 2013, the Nevada
Supreme Court affirmed the decision of the trial court. R&S St. Rose Lenders,
LLC v. Branch Banking and Trust Co. et al., No. 56640, 2013 WL 3357064 (Nev.
May 31, 2013). In February 2014, the Nevada Supreme Court denied rehearing en
banc. R&S St. Rose Lenders, LLC v. Branch Banking and Trust Co. et al., No.
56640, Order Denying en banc Reconsideration (Nev. February 21, 2014).
b. Bankruptcy Court Decision and District Court Appeal
While BB&T’s appeal to the Nevada Supreme Court was pending, Debtor
filed for Chapter 11 relief with the Bankruptcy Court for the District of Nevada. In
that action, BB&T filed Proof of Claim 43 (“POC 43”), stating a claim of $38
million dollars. In POC 43, BB&T referenced the pending appeal with the Nevada
Supreme Court, and asserted the superiority of the 2007 Colonial DOT over the
2005 Debtor DOT, alleging “fraud” and “conspiracy” as the basis for their Claim.
Appellant Creditor Group filed an objection to BB&T’s POC, asserting that the
5
POC was barred on claim preclusion and issue preclusion grounds as a result of the
decision in the State Court Action. The Bankruptcy Court agreed with the Creditor
Group, and dismissed the POC in June 2014 on res judicata grounds. In re: R & S
St. Rose Lenders, LLC, No. 11-14973-MKN, ECF 365, Order on Object. (Bankr.
D. Nev. June 3, 2014). BB&T appealed to the District of Nevada. The District
Court reversed the Bankruptcy Court’s decision. Branch Banking and Trust
Company v. Creditor Group, No. 2:14-CV-926-GMN, 2015 WL 1470692 (D.
Nev., March 30, 2015). The Creditor Group filed this timely appeal.
III. Statement of Issues Presented
Appellant seeks reversal of the District Court’s decision, and by extension,
reinstatement of the Bankruptcy Court’s decision. Appellant advances three main
arguments on appeal: (1) POC 43 is barred by issue preclusion (2) POC 43 is
barred by claim preclusion, and (3) POC 43 is legally insufficient.
IV. Jurisdiction
The District Court had jurisdiction to review the Bankruptcy Court’s
decision under 28 U.S.C. § 158(a)(1). This Court has jurisdiction under 28 U.S.C.
§ 158(d).
V. Standard of Review
We review the District Court’s decision de novo. In re Am. W. Airlines,
Inc., 217 F.3d 1161, 1163 (9th Cir. 2000). More specifically, we consider the
6
Bankruptcy Court’s decision independently of the District Court’s review, and
review the Bankruptcy Court’s findings of fact for clear error and its conclusions
of law de novo. Id.
VI. Discussion
1. Applicable Law
Under the Full Faith and Credit Act, a federal court must give a state-court
judgment the same preclusive effect as it would be given under the law of the state
in which the judgment was rendered. 28 U.S.C. § 1738; Holcombe v. Hosmer, 477
F.3d 1094, 1097 (9th Cir. 2007); see also In re Baldwin, 249 F.3d 912, 917 (9th
Cir. 2001) (applying same rule in bankruptcy context). Accordingly, Nevada law
concerning the preclusive effect of prior judgments applies to the Nevada state
court judgment in this case. Holcombe, 477 F.3d. at 1097.
There are two preclusion doctrines at issue in this case: claim preclusion and
issue preclusion. Many courts refer to these two doctrines together as res judicata.
Taylor v. Sturgell, 553 U.S. 880, 892 (2008); Univ. of Nevada v. Tarkanian, 879
P.2d 1180, 1191 (Nev. 1994). The Nevada Supreme Court has made clear that
issue preclusion and claim preclusion are distinct from each other, and should not
be conflated. Five Star Capital Corp. v. Ruby, 194 P.3d 709, 713 (Nev. 2008).
Though both may be applicable to the same case, they are analytically separate. Id.
at 712.
7
Under Nevada law, issue preclusion applies when: “(1) [the] issue [is]
identical [to the issue decided in the prior litigation], (2) the initial ruling was final
and on the merits, (3) the party against whom the judgment is asserted was a party
or in privity with a party in the prior case, and (4) the issue was actually and
necessarily litigated.” Bower v. Harrah’s Laughlin, Inc., 215 P.3d 709, 718 (Nev.
2009) (internal quotations omitted). If all four factors are met, issue preclusion
prevents re-litigation of the already-decided issue, even when the later litigation is
based on different causes of action or different situations. In re Sandoval, 232 P.3d
422, 423 (Nev. 2010).
Claim preclusion applies when: “(1) the parties or their privies are the same,
(2) the final judgment is valid, and (3) the subsequent action is based on the same
claims or any part of them that were or could have been brought in the first case.”
Five Star, 194 P.3d at 713. Unlike issue preclusion, which only applies to issues
that were actually and necessarily litigated, claim preclusion applies to all claims
that were raised or could have been raised in the initial case. Id.
2. Decisions Below
a. Bankruptcy Court’s Decision
In its objection to the proof of claim, the Creditor Group argued that the
POC was barred by both claim preclusion and issue preclusion – without clearly
distinguishing between these two doctrines. In assessing the merits of the Creditor
8
Group’s arguments, the Bankruptcy Court first recited the applicable standards
under issue preclusion and claim preclusion. In re: R & S St. Rose Lenders, LLC,
No. 11-14973-MKN, 11-12 (Bankr. D. Nev, June 3, 2014). Then, without clearly
articulating the basis for its decision, but suggesting that it was relying on the issue
preclusion doctrine, the Bankruptcy Court held that the POC was barred because
the merits of the fraud and conspiracy claims had already been decided in the State
Court Action. Id. at 13. The Bankruptcy Court avoided a clear decision on claim
preclusion and thereby avoided an analysis of the effectiveness of the assignment
of claims from Colonial Bank to BB&T. Id.
b. District Court’s Decision
The District Court reversed the Bankruptcy Court’s decision regarding issue
preclusion, holding that the Nevada State Court and Nevada Supreme Court had
based their decision on standing, and did not reach a merits decision regarding
fraud or conspiracy. Branch Banking and Trust Company v. Creditor Group, No.
2:14-CV-926-GMN, 2015 WL 1470692, *4 (D. Nev., March 30, 2015). The
District Court did not address the Creditor Group’s argument that BB&T’s Proof
of Claim was barred by claim preclusion. Id. at 2 n. 1. In declining to do so, the
District Court noted that the basis for the Bankruptcy Court’s decision was not
entirely clear, and also noted that the Creditor Group seemed to have abandoned
9
their claim preclusion argument on appeal. Id. As a result, the District Court did
not analyze whether claim preclusion applies to bar POC 43.
3. Analysis
a. Issue Preclusion
The Creditor Group and BB&T disagree about whether the fourth element of
the issue preclusion doctrine has been satisfied – that is, whether the common issue
was “actually and necessarily litigated in” the previous action. Five Star, 194 P.3d
at 711. In evaluating whether an issue was “actually and necessarily litigated,”
“actually” refers to the issue having been properly raised and submitted for
determination in the prior suit, and “necessarily” refers to the issue having been
necessary to the judgment in the prior suit. See Frei ex rel. Litem v. Goodsell, 305
P.3d 70, 72 (Nev. 2013); see also Alcantara ex rel. Alcantara v. Wal-Mart Stores,
Inc., 321 P.3d 912, 918 (Nev. 2014). The Creditor Group argues that in the State
Court Action, the judge found that no misrepresentation had been made to
Colonial. As a result, the Creditor Group argues, that issue was litigated and
decided in the State Court Action, and cannot be re-litigated again in this
bankruptcy proceeding. Because BB&T’s POC relies on alleged
misrepresentations made to Colonial, the Creditor Group argues that the POC is
barred by issue preclusion. BB&T argues that while the State Court judge might
have made findings related to misrepresentations, this issue was not “actually and
10
necessarily litigated” because the actual basis for the State Court decision was the
judge’s finding that BB&T did not prove that it was the successor in interest to
Colonial, and therefore that it could not assert Colonial’s claims.
We agree with the District Court that issue preclusion does not apply to
prevent BB&T from asserting its POC with the Bankruptcy Court. The issue here
– whether misrepresentations were made to Colonial – may have been litigated, but
a determination on that issue was not necessary to the Nevada trial court’s
judgment.2 The Nevada trial court clearly held BB&T was not permitted to bring
claims on behalf of Colonial because BB&T failed to submit sufficient evidence to
establish that it was Colonial’s successor in interest. Murdock v. Rad, et al., No.
11- A574852, 7 (Nev. Dist. Ct., June 18, 2010). The Nevada Supreme Court
affirmed the trial court’s decision on the same basis, agreeing that the evidence
submitted and accepted by the Nevada trial court did not establish that BB&T
owned the claims it was asserting. R&S St. Rose Lenders, LLC v. Branch Banking
and Trust Co. et al., No. 56640, Order of Affirmance at 6 (Nev. May 31, 2013).
2
Indeed, there is some question as to whether the issue was “actually litigated” or
“properly raised and submitted for determination” at all. Frei ex rel. Litem, 305
P.3d at 72. That is, the parties agreed to delay an evidentiary hearing regarding
BB&T’s fraudulent misrepresentation and civil conspiracy claims. Though
testimony relevant to this issue was nevertheless elicited during the hearing, it is
not clear that this was proper or that the issues were “submitted for determination.”
Id.
11
As a result, to the extent that the Nevada trial court examined the merits of
any of BB&T’s claims, its determinations on those substantive issues were not
necessary in reaching its decision. Regardless of what conclusions the court
reached on those issues, it would not have changed the outcome of its decision.
Therefore, although the Nevada trial court’s decision includes a finding that no
misrepresentations had been made to Colonial, that finding does not relate to
whether BB&T submitted sufficient evidence to show that it was the successor in
interest to Colonial, which was the sole basis for the Nevada trial court’s decision.
Accordingly, that finding has no preclusive effect in this bankruptcy proceeding.3
b. Claim Preclusion
The Creditor Group argues that even if issue preclusion does not apply here,
claim preclusion bars POC 43. BB&T argues that this Court should not address
this argument, because the District Court did not address it. The applicable
standard of review, however, is for this Court to consider the Bankruptcy Court’s
decision independent of the District Court’s decision, because this Court is in as
good of a position to review the Bankruptcy Court’s decision as was the District
Court. In re Am. W. Airlines, Inc., 217 F.3d at 1163. Therefore, it is appropriate
3
This interpretation accords with Branch Banking and Trust Co. v. D.M.S.I., LLC,
871 F.3d 751, 760–61 (9th Cir. 2017), in which we stated that the same Nevada
state court decisions were “evidentiary” rulings that the materials BB&T submitted
did not “show assignment of a loan.”
12
for the panel to consider Appellant’s argument that POC 43 is barred by the claim
preclusion doctrine.
As stated above, claim preclusion applies where (1) the parties are the same
in both lawsuits, (2) the earlier lawsuit resulted in a valid final judgment, and (3)
the claims raised in the later lawsuit were raised or could have been raised in the
earlier lawsuit. Five Star, 194 P.3d at 713. The first and third elements of the test
are not seriously disputed here. Indeed, the crux of the parties’ dispute is whether
the State Court Action resulted in a valid final judgment so as to have preclusive
effect.
Without citing any law, the Creditor Group argues that the Nevada trial
court’s determination that BB&T had not met its evidentiary burden to show that it
owned the claims it was asserting, coupled with BB&T’s voluntary dismissal of its
fraudulent transfer and civil conspiracy claim, constitutes a final judgment on the
merits. BB&T argues that POC 43 is not barred by claim preclusion because
voluntary dismissal is not a final judgment on the merits.
We agree with BB&T. Under Nevada law, “a valid final judgment . . . does
not include a case that was dismissed without prejudice or for some reason
(jurisdiction, venue, failure to join a party) that is not meant to have preclusive
effect.” Five Star, 194 P.3d at 713 n.27 (emphasis added) (citing Restatement (2d)
of Judgments §§ 19, 20.). Here, the Nevada trial court granted BB&T’s voluntary
13
motion to dismiss its fraudulent misrepresentation and civil conspiracy claims.
Because the order of dismissal does not indicate otherwise, the Nevada trial court
dismissed these two claims without prejudice. Nev. R. Civ. P. 41(a)(2) (“Unless
otherwise specified in the order, a dismissal [by order of the court] is without
prejudice.”). Accordingly, the dismissal does not constitute a valid final judgment
to preclude BB&T’s similar claims of “fraud” and “conspiracy” as the basis for
POC 43. Five Star, 194 P.3d at 713 n.27.
c. Merits of Proof of Claim
As an alternative to its issue preclusion and claim preclusion arguments,
Creditor Group asks this Court to hold that BB&T’s Proof of Claim is legally
insufficient. The merits of POC 43 were not considered by the Bankruptcy Court
or the District Court, and the record on the substantive issues is not fully
developed. It would be inappropriate to consider the merits of POC 43 for the first
time on appeal, given the lack of record development, and because there is no
exceptional circumstance that would allow this Court to do so. Wright v.
Riveland, 219 F.3d 905, 913 n. 5 (9th Cir. 2000).
VII. Conclusion
The judgment of the District Court is AFFIRMED and the case is
REMANDED to the Bankruptcy Court for further proceedings, including
consideration of the merits of POC 43.
14