First Interstate Bank of Denver, N.A. v. Central Bank & Trust Co. of Denver

• Decision Date: 22 August 1996
• Docket Number: No. 95CA0822,95CA0822
• Citation: 937 P.2d 855
• Parties: FIRST INTERSTATE BANK OF DENVER, N.A., Plaintiff-Appellant, v. CENTRAL BANK & TRUST COMPANY OF DENVER, Defendant-Appellee. . IV
• Court: Colorado Court of Appeals

Page 855

937 P.2d 855

FIRST INTERSTATE BANK OF DENVER, N.A., Plaintiff-Appellant, v. CENTRAL BANK & TRUST COMPANY OF DENVER, Defendant-Appellee.

No. 95CA0822.

Colorado Court of Appeals Div. IV.

Aug. 22, 1996.

Rehearing Denied Oct. 10, 1996.

Certiorari Denied May 19, 1997.

Gersh & Danielson, Miles M. Gersh, James S. Helfrich; Kelly/Haglund/Garnsey & Kahn, L.L.C., Edwin S. Kahn, Denver, for Plaintiff-Appellant.

Ireland, Stapleton, Pryor & Pascoe, Tucker K. Trautman, Van Aaron Hughes, Denver, for Defendant-Appellee.

Opinion by Judge DAVIDSON.

In this securities action, plaintiff, First Interstate Bank of Denver, N.A., appeals from a judgment of the trial court dismissing its complaint against defendant, The Central Bank & Trust Co., on the grounds that plaintiff's claims were barred by res judicata and the statute of repose. We reverse.

In 1989, plaintiff sued defendant in federal court based on an implied private cause of action for aiding and abetting violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b)(1988 & Supp. III 1991). See First Interstate Bank, N.A. v. Pring, 969 F.2d 891 (10th Cir.1992). Plaintiff did not join any state law claims in that complaint. The United States Supreme Court ultimately upheld the federal district court's summary judgment dismissal of the claim, holding that a private plaintiff may not maintain an aiding and abetting suit under § 10(b). See Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). In anticipation of an appeal to the Tenth Circuit, the parties agreed in writing to toll any statute of limitations, doctrine of laches, or other time bar on plaintiff's state claims until after a final adjudication on the federal claims.

After final determination by the United States Supreme Court, plaintiff brought this action for aiding and abetting fraud under the Colorado Securities Act of 1981, (the Securities Act), §§ 11-51-123 and 11-51-125, C.R.S. (1987 Repl.Vol. 4B), and common law claims of fraud, breach of trust and fiduciary duty, conspiracy, and aiding and abetting fraud. In response to a motion to amend the complaint, defendant moved to dismiss the claims pursuant to C.R.C.P. 12(b)(5) and C.R.C.P. 9(b).

Prior to trial, the court granted defendant's motion to dismiss on the grounds that all of plaintiff's claims were barred by res judicata. Further, the trial court found that plaintiff's claim of aiding and abetting fraud under the Securities Act was barred by the Act's statute of repose, § 11-51-125(8), C.R.S. (1987 Repl.Vol. 4B) (currently codified at § 11-51-604(8), C.R.S. (1995 Cum.Supp.)). This appeal followed.

I.

Plaintiff first contends that the trial court erred in dismissing its claims on the basis of res judicata. We agree.

Two inquiries are applicable to determine whether res judicata bars a state action after a federal action involving the same transaction: whether the federal court had jurisdiction over the state claims and, if so, whether it would nevertheless have exercised its discretion to dismiss the claims. Restatement (Second) of Judgments § 25 comment e (1982); cf. 28 U.S.C. § 1367 (1990) (codifying federal law on pendent jurisdiction for suits commenced on or after December 1, 1990).

In its response to defendant's motion to dismiss plaintiff's amended complaint, plaintiff recognized both the jurisdictional and discretionary elements of a res judicata analysis. Plaintiff did not, however, address the discretion issue, contending instead that this second question need not be reached because in its view the federal claims were themselves "insubstantial" and, therefore, the federal court had no jurisdiction to assert pendent jurisdiction over the state claims. Defendant, on the contrary, argued to the trial court that plaintiff was required to demonstrate that the federal court would have dismissed the pendent clams.

The trial court rejected plaintiff's argument that the federal court lacked jurisdiction over the state law claims because the federal claims were not insubstantial, see United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218, 227 (1966) (underlying federal claim must only "have substance sufficient to confer subject matter jurisdiction on the court") and ruled that, because plaintiff had not affirmatively demonstrated that the federal court would not have taken jurisdiction, its claims were barred on the basis of res judicata.

A.

As a threshold matter, defendant asserts that plaintiff's contention is not properly before this court for review. While defendant recognizes that the issue of res judicata was raised and decided in the trial court, it argues that because plaintiff did not specifically contend, as it does here, that the federal district court would have declined to exercise its discretion to take jurisdiction over the state claims, its contention is untimely raised. We disagree.

Arguments not presented to, considered, or ruled upon by a trial court may not be raised for the first time on appeal. In re Estate of Stevenson v. Hollywood Bar & Cafe, Inc., 832 P.2d 718 (Colo.1992).

Because the effect of the doctrine of res judicata was the basis of the trial court's decision, we decline to fragment the res judicata test into separate issues so that failure to emphasize one part precludes argument on the other on appeal. See In re Marriage of Wright, 841 P.2d 358 (Colo.App.1992) (res judicata appropriate issue on appeal when argument in trial court gives notice on what basis the party is defending); cf. Flagstaff Enterprises Construction, Inc. v. Snow, 908 P.2d 1183 (Colo.App.1995) (statute of limitations first raised in post-trial motion not addressed on appeal since other party unable to address the contention at trial and trial court made no findings).

Consequently, we address plaintiff's contentions on their merits.

B.

Plaintiff asserts that the trial court erred in dismissing its claims on the grounds that it did not sufficiently demonstrate that the federal district court would have exercised its discretion to dismiss those claims. We agree.

"Pendent jurisdiction is a doctrine of discretion." United Mine Workers v. Gibbs, supra, 383 U.S. at 726, 86 S.Ct. at 1139, 16 L.Ed.2d at 228. Thus, for a subsequent state claim to survive a defense of res judicata based on pendent jurisdiction, plaintiff must establish that the federal court "would clearly have declined to exercise [pendent jurisdiction] as a matter of discretion." Restatement (Second) of Judgments § 25 comment e (1982) (emphasis added); Whalen v. United Air Lines Inc., 851 P.2d 251 (Colo.App.1993); cf. Dalal v. Alliant Techsystems, Inc., 934 P.2d 830 (Colo.App. 1996) (plaintiff must justify failure to assert diversity jurisdiction to avoid res judicata ).

The supreme court has recognized, however, that When a federal claim is dismissed on a motion for summary judgment, federal courts have consistently held that 'a sound exercise of discretion requires dismissal of the state claims as well without prejudice to [the] plaintiffs' right to litigate them in the proper state forum.' Because the state claims were not truly 'available to the parties' in the federal action, res judicata does not apply to bar the state action.

City & County of Denver v. Block 173 Associates, 814 P.2d 824, 831 (Colo.1991). "Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well." United Mine Workers v. Gibbs, supra, 383 U.S. at 726, 86 S.Ct. at 1139, 16 L.Ed.2d at 228.

While Gibbs did not establish a mandatory rule on dismissals prior to trial, it recognized that the factors to be balanced in an exercise of discretion--judicial economy, convenience, and fairness--usually lead to dismissal of state claims after a pretrial dismissal of federal claims. See Carnegie-Mellon University v. Cohill, 484 U.S. 343, 108 S.Ct. 614, 98 L.Ed.2d 720 (1988) (fn.7).

In contrast, if a federal court trial has been or will be held regardless of joinder of any state claims, it cannot necessarily be inferred from the disposition of the federal claims that judicial economy, convenience, or fairness to the parties would require dismissal of the state claims. See Shaoul v. Goodyear Tire & Rubber, Inc., 815 P.2d 953, 955 (Colo.App.1990) (when federal claims dismissed after trial to the court, "[a]ny doubts concerning the federal court's exercise of pendent jurisdiction should be resolved in favor of joinder"); compare Rosado v. Wyman, 397 U.S. 397, 90 S.Ct. 1207, 25 L.Ed.2d 442 (1970) (trial court properly decided pendent state claims after federal claims became moot following a hearing but before a decision was rendered) with Transok Pipeline Co. v. Darks, 565 F.2d 1150 (10th Cir.1977) (waste of time to dismiss pendent parties after four years of litigation and two trials) and Ohio v. Peterson, Lowry, Rall, Barber & Ross, 472 F.Supp. 402 (D.Colo.1979), aff'd, 651 F.2d 687 (10th Cir.1981) (court will not sua sponte dismiss state claims when federal claims would be litigated); cf. 28 U.S.C. 1367(c)(3) (district court may decline to exercise jurisdiction over a claim if "the district court has dismissed all claims over which it has original jurisdiction"). But see Buchanan v. Dain Bosworth Inc., 469 N.W.2d 508 (Minn.App.1991) (without an attempt at joinder of state claims in federal court, trial court can only speculate how federal court would have exercised discretion).

For example, in Whalen, a federal district court dismissed state court claims based on the plaintiff's failure to respond to an order to show cause why the federal court should exercise its discretion to retain the claims. The court then proceeded to adjudicate the remaining federal claim in a bench trial. On these facts, a division of this court determined that, because the plaintiff had presented no...