Lowell Staats Min. Co., Inc. v. Philadelphia Elec. Co., s. 87-1570

• Decision Date: 19 June 1989
• Docket Number: 87-1779,Nos. 87-1570,s. 87-1570
• Citation: 878 F.2d 1271
• Parties: LOWELL STAATS MINING COMPANY, INC., a Colorado corporation, Plaintiff-Appellant, v. PHILADELPHIA ELECTRIC COMPANY, Umetco Minerals Corporation, Burton P. Smith, Wallace D. Robison, C. David Culver, Pioneer Nuclear, Inc., Pioneer Corporation and Mesa Operating Limited Partnership, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1271

878 F.2d 1271

LOWELL STAATS MINING COMPANY, INC., a Colorado corporation Plaintiff-Appellant, v. PHILADELPHIA ELECTRIC COMPANY, Umetco Minerals Corporation Burton P. Smith, Wallace D. Robison, C. David Culver Pioneer Nuclear, Inc., Pioneer Corporation and Mesa Operating Limited Partnership, Defendants-Appellees.

Nos. 87-1570, 87-1779.

United States Court of Appeals Tenth Circuit.

June 19, 1989.

Joseph Coleman of Coleman, Brown & Jouflas, Grand Junction, Colo., for plaintiff-appellant.

David A. Price (Gregory K. Hoskin, Theodore Allegra with him on the briefs) of Nelson, Hoskin, Groves & Prinster, P.C., Grand Junction, Colo., for defendants-appellees.

Before LOGAN, BARRETT, and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

Lowell Staats Mining Company (Staats) brings two separate appeals arising out of one case in the district court. These appeals were consolidated. Staats claims the federal district court erred in granting the defendants' petition to remove the case from the Colorado state district court based on diversity jurisdiction, and in dismissing the claims against all defendants as barred by res judicata. This opinion discusses each appeal separately. Having considered the parties' arguments we affirm.

Staats originally brought a suit against Pioneer Uravan, Inc. wherein the jury awarded $629,562 in damages. When Staats was unable to collect on that judgment it brought a second suit, which is the subject of these two appeals.

The following facts regarding the two separate district court suits brought by Staats and the three resulting appeals are necessary to understand this appeal.

STAATS I

In 1982, Staats brought a suit against Pioneer Uravan, Inc. (Uravan) claiming breach of a mining contract and misrepresentation of terms and actions to be taken under the contract. Pretrial Order. In 1985, Staats brought into this suit as third party defendants, Pioneer Corporation (Pioneer) and Pioneer Nuclear Inc. (Nuclear), claiming these corporations were responsible for Uravan's liabilities under the theories of alter ego, instrumentality, agency, successor corporation, and receipt of fraudulent conveyances. At the conclusion of Staats' case in chief, the court granted Pioneer and Nuclear a directed verdict on all claims. Staats' breach of contract claim went to the jury, which awarded Staats $629,562 in damages against Uravan. The district court's rulings on post trial motions are discussed in Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 645 F.Supp. 254 (D.Colo.1986). Staats appealed the district court's directed verdict in favor of Nuclear and Pioneer, and its failure to award prejudgment interest on the damages against Uravan. We affirmed the district court's decision except as to prejudgment interest in Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 878 F.2d 1259 (10th Cir.1989).

STAATS II

When Staats was unsuccessful in collecting its judgment against Uravan, it brought a second suit in Colorado state district court against three individuals and five corporations seeking to hold these defendants liable for the Staats I judgment. In the complaint, Staats alleged three of the individuals, Smith Robison and Culver, were liable for the Staats I judgment because they aided and assisted in the fraudulent conveyances of Uravan assets to Nuclear, and Nuclear assets to Pioneer. Staats alleged liability against Nuclear, Pioneer, and Mesa Operating Limited Partnership (Mesa) under theories that they received fraudulent conveyances from Uravan; that Staats was a third party beneficiary of a contract wherein Nuclear agreed to be responsible for the Staats I judgment; that Nuclear was a partner of Uravan and liable for its debts; and that Pioneer and Mesa were likewise responsible as successor corporations of Nuclear. Staats alleged liability against Philadelphia Electric Company (PEC) on theories of partnership, bulk transfer, and receipt of fraudulent conveyances from Uravan. Staats alleged liability against Umetco Minerals Corporation (Umetco) based on theories of partnership and receipt of fraudulent conveyances from Uravan.

After receiving the complaint, the defendants petitioned the federal district court for removal from state court, alleging two of the individual defendants had been fraudulently joined to defeat diversity jurisdiction. The individual defendants Smith and Robison moved for dismissal. The district court judge conducted a hearing pursuant to 28 U.S.C. Sec. 1446(c)(5) (Supp.1988) to determine the propriety of granting the petition for removal and the motions to dismiss. The trial court took judicial notice of the proceedings in Staats I. The trial court found the individual defendants, Smith and Robison, in privity with Uravan Pioneer, and Nuclear. Lowell Staats Mining Co. v. Philadelphia Elec. Co., 651 F.Supp. 1364, 1367 (D.Colo.1987) (hereinafter Staats v. PEC ), and Order on the Motion for Reconsideration (finding Smith and Robison in privity with Nuclear). The trial court found the interests of Robison and Smith were at stake in Staats I and the directed verdict in that case barred the second suit against these individuals as agents of Uravan, Pioneer, and Nuclear. Id. The district court dismissed the claims against Robison and Smith and granted the removal petition. Id. Staats appeals, asserting the district court erred in applying res judicata and in granting the petition for removal.

STAATS III

Following the district court's Order in Staats II dismissing defendants Smith and Robison, the remaining defendants, PEC, Umetco, Mesa, and Culver, filed motions to dismiss based on res judicata. The district court applied the doctrine of res judicata to defendants Nuclear and Pioneer sua sponte. The district court dismissed all of Staats' claims against these remaining defendants. Lowell Staats Mining Co. v. Philadelphia Elec. Co., 660 F.Supp. 809 (D.Colo.1987) (hereinafter Staats v. PEC II ). Staats appeals this dismissal.

A. Standard of Review

The district court's dismissal of Staats' claims after consideration of matters outside of the pleadings is treated as a motion for summary judgment. Fed.R.Civ.P. 12(b)(6). In reviewing a summary judgment order, the appellate court applies the same standard employed by the trial court under Fed.R.Civ.P. 56(c).

When a motion for summary judgment is granted, it is the appellate court's duty to examine the record to determine if any genuine issues of material fact were in dispute; if not, the court must decide if the substantive law was correctly applied. During this review, the court must examine the record in the light most favorable to the party opposing the motion.

Osgood v. State Farm Mut. Auto. Ins. Co., 848 F.2d 141, 143 (10th Cir.1988) (citation omitted). The party resisting the motion may not rest on the bare allegations or denials of his pleadings. Rather he must produce some evidence showing a genuine issue for trial. Rea v. Wichita Mortg. Corp., 747 F.2d 567, 573 (10th Cir.1984).

As a general rule we apply federal law to the res judicata issue in successive diversity actions, but federal law will incorporate state law when the issue is more distinctly substantive, as with the concept of "privity". Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d 1329, 1333 (10th Cir.1988). "Under res judicata, 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 that action." Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980) (citing Cromwell v. County of Sac, 94 U.S. 351, 352, 24 L.Ed. 195 (1876)); St. Louis Baptist Temple v. Federal Deposit Ins. Corp., 605 F.2d 1169, 1174 (10th Cir.1979). Stated differently, " 'a final judgment on the merits bars further claims by parties or their privies based on the same cause of action.' " Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979) (quoting Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979)). We have adopted the transactional approach of the Restatement (Second) of Judgments Sec. 24 (1982) to determine what is a single "cause of action." Petromanagement, 835 F.2d at 1335. Section 24 states a final judgment extinguishes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose. What constitutes a "transaction" or a "series" is to be determined pragmatically considering whether the facts are related in time, space, origin, or motivation, and whether they form a convenient trial unit. Id. at Sec. 24(2).

There is no definition of "privity" which can be automatically applied to all cases involving the doctrines of res judicata and collateral estoppel. Privity requires, at a minimum, a substantial identity between the issues in controversy and showing the parties in the two actions are really and substantially in interest the same. St. Louis Baptist Temple, 605 F.2d at 1174. Privity has been held to exist in the following relationships: concurrent relationship to the same property right (i.e. trustee and beneficiary); successive relationship to the same property or right (i.e. seller and buyer); or representation of the interests of the same person. 1B J. Moore, J. Lucas, T. Currier, Moore's Federal Practice, p 0.411 at 392 (2d. ed. 1988).

Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision precludes relitigation of that fact or issue in a second suit on a different cause of action involving the same party or their privy. Montana v. United States, 440 U.S. at 153, 99 S.Ct. at 973 (citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979)); St. Louis Baptist Temple, 605 F.2d at 1175.

B. Appeal of Staats II

The district court dismissed Staats' claims...