Pettingill Enters., Inc. v. Blackstone Equip. Fin., L.P. (In re Pettingill Enters., Inc.)

• Decision Date: 02 November 2012
• Docket Number: Adversary No. 12-1217 J,Jointly administered under Case No. 11-12-10515 JA
• Parties: In re: PETTINGILL ENTERPRISES, INC., A New Mexico corporation, and DAVID PETTINGILL and PAMELA PETTINGILL, Debtors. PETTINGILL ENTERPRISES, INC., A New Mexico corporation, Plaintiff, v. BLACKSTONE EQUIPMENT FINANCING, L.P., A California Limited Partnership, Defendant.
• Court: U.S. Bankruptcy Court — District of New Mexico

In re: PETTINGILL ENTERPRISES, INC., A New Mexico corporation,

and DAVID PETTINGILL and PAMELA PETTINGILL, Debtors.

PETTINGILL ENTERPRISES, INC., A New Mexico corporation, Plaintiff,

v.BLACKSTONE EQUIPMENT FINANCING, L.P., A California Limited Partnership, Defendant.

Jointly administered under Case No. 11-12-10515 JA

Adversary No. 12-1217 J

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

Date entered on docket: November 2, 2012

ORDER DENYING BLACKSTONE EQUIPMENT FINANCING, L.P.'S

MOTION TO DISMISS

THIS MATTER is before the Court on Blackstone Equipment Financing, L.P.'s Motion to Dismiss ("Motion to Dismiss") filed by Blackstone Equipment Leasing, L.P. f/k/a Blackstone Equipment Financing, L.P. ("Blackstone"), by and through its attorneys of record, Butt Thornton & Baehr PC (Rodney L. Schlagel). See Docket No. 10. Plaintiff Pettingill Enterprises, Inc. ("PEI"), opposes the motion. See Plaintiff's Response to Blackstone Equipment Financing's Motion to Dismiss ("Response"), Docket No. 14. Blackstone also filed a reply. See Blackstone Equipment Financing, L.P.'s Reply in Support of its Motion to Dismiss ("Reply"), Docket No. 15. Blackstone asserts that a determination by Judge Starzynski in the PEI bankruptcy case thatthe transaction between Blackstone and PEI constituted a "true lease" and not a financing arrangement forecloses PEI from asserting a fraudulent transfer claim against Blackstone in this adversary proceeding relating to the same transaction. Blackstone requests the Court to dismiss PEI's complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim, arguing that res judicata and collateral estoppel bar PEI's claims. After consideration of the Motion to Dismiss, the Response, and the Reply, and being otherwise sufficiently informed, the Court finds that neither res judicata nor collateral estoppel apply to PEI's claims raised in this adversary proceeding. The Court, will, therefore, deny the Motion to Dismiss.

DISCUSSION

The purpose of Fed.R.Civ.P. 12(b)(6), made applicable to adversary proceedings by Fed.R.Bankr.P. 7012, is to test the sufficiency of the complaint. Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994)(stating that Rule 12(b)(6) tests "the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true.")(citation omitted). In evaluating a motion to dismiss, the Court accepts as true all well-pleaded allegations in the complaint, disregarding any legal conclusions, and evaluates the factual allegations in the light most favorable to the plaintiff. Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006)(stating that under Rule 12(b)(6), "'all well-pleaded factual allegations in the . . . complaint are accepted as true and viewed in the light most favorable to the nonmoving party.'")(quoting Sutton v. Utah State Sch. For the Deaf and Blind, 173 F.3d 112, 1236 (10th Cir. 1999)); Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)(explaining that "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.").

Res judicata may be raised through a motion to dismiss; however, the facts necessary to support the defense must be apparent from the face of the pleadings. See Miller v. Shell Oil Co., 345 F.2d 891, 893 (10th Cir. 1965)(reversing court's decision to grant a motion to dismiss based on defense of res judicata, where the facts that would support the defense were not contained in the complaint). See also, Andrews v. Daw, 201 F.3d 521, 524 n.1 (4th Cir. 2000)(acknowledging that the affirmative defense of res judicata may be raised through a motion to dismiss under Rule 12(b)(6), but "'only if it clearly appears on the face of the complaint.'")(quoting Richmond, Fredericksburg & Potomac R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993)).¹ If evidentiary material outside the complaint is considered, the Court must treat the motion as a motion for summary judgment under Fed.R.Civ.P. 56. See Rule 12(d), Fed.R.Civ.P., made applicable to adversary proceedings by Rule 7012, Fed.R.Bankr.P.; Miller v. Shell Oil, 345 F.2d at 893 (stating that, while a defendant may raise an affirmative defense through a motion to dismiss, the court must treat the motion as a motion for summary judgment under Rule 56, Fed.R.Civ.P. if the affirmative defense is based upon matters outside of the complaint). Alternatively, the party asserting res judicata or collateral estoppel through a motion to dismiss may request the Court to take judicial notice of additional documents filed of record in the prior case. Cf. Andrews v. Daw, 201 F.3d at 524 n.1 (stating that "when entertaining a motion to dismiss on the ground of res judicata, a court may take judicial notice of facts from a prior judicial proceeding when the res judicata defense raises no disputed issue of fact.")(citations omitted).

The Complaint includes the following factual allegations:

a. PEI filed a voluntary petition under Chapter 11 of the Bankruptcy Code on February 14, 2012. See Complaint to Recover Fraudulent Transfers ("Complaint"), ¶ 3 - Docket No. 1.

b. On May 31, 2011, and within two years prior to the filing of the [bankruptcy] petition, PEI sought to borrow funds from Blackstone, and Blackstone agreed to provide funds to PEI, but on terms designed by Blackstone. Complaint, ¶ 5.

c. In order to provide funding to PEI, Blackstone arranged an 'equipment lease' which required PEI to first assign to Blackstone, as a 'sale' specific equipment then owned by BEI, which equipment is listed on the Blackstone 'lease,' (the 'listed equipment'), and then for PEI to 'lease' such listed equipment back from Blackstone. PEI has, in the underlying chapter eleven proceeding, asserted that the 'lease' referred to with Blackstone is actually a financing arrangement whereby Blackstone loaned the Debtor funds, and took a security interest in certain of PEI's assets, but Blackstone asserts that such arrangement is a 'true lease,' and the Court has not determined that the arrangement is a true lease. Complaint, ¶ 6.

The Motion to Dismiss includes the following additional facts:

a. On March 26, 2012, Blackstone filed a Motion for Relief from the Automatic Stay as to Leased Equipment, or in the Alternative, for Adequate Protection pursuant to 11 U.S.C. § 365(D)(1). Motion to Dismiss, ¶ 2.

b. After hearing oral arguments and testimony from all parties, in an oral ruling on June 20, 2012, Judge Starzynski ordered that the Plaintiff commence making monthly adequate protection payments to Defendant in the amount of $23,559.55 , plus tax, for a total of $25,380.58, with the first payment being due on July 2, 2012, and all subsequent payments being due on the first of the month. Motion to Dismiss, ¶ 3.

c. At no time in Plaintiff's Response to the Motion for Adequate Protection, or during oral arguments did Plaintiff argue that the transaction between Blackstone and Plaintiff was a fraudulent transfer. Motion to Dismiss, ¶ 4.

d. Plaintiff filed its Complaint to Recover Fraudulent Transfers on June 21, 2012. Motion to Dismiss, ¶ 5.

PEI does not contest these additional facts raised by Blackstone in its Motion to Dismiss. See Response, ¶ 1.

Blackstone asserts that Judge Starzynski's prior determination as part of the stay litigation that the transaction at issue constitutes a true lease bars PEI under the doctrines of res judicata or collateral estoppel from asserting a claim to avoid the transaction as a fraudulent transfer pursuant to 11 U.S.C. § 548. "Res judicata and collateral estoppel relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by preventing inconsistent decisions, encourage reliance on adjudication." Northern Natural Gas Co. v. Grounds, 931 F.2d 678, 681 (10th Cir. 1991)(citing Montana v. United States, 440 U.S. 147, 153-154, 99 S.Ct. 970, 973-974, 59 L.Ed.2d 210 (1979)).

Under federal law² , res judicata (also known as claim preclusion) requires satisfaction of the following elements: "(1) a judgment on the merits in the earlier action; (2) identity of the parties or their privies in both suits; and (3) identity of the cause of action in both suits." Hatch v. Boulder Town Council, 471 F.3d 1142, 1149 (10th Cir. 2006)(quoting Yapp v. Exel Corp., 186 F.3d 1222, 1226 (10th Cir. 1999)). In other words, "[a] claim is barred by res judicata when the prior action involved identical claims and the same parties or their privies." Frandsen v. Westinghouse Corp., 46 F.3d 975, 978 (10th Cir. 1995)(citing Satsky v. Paramount Communications, Inc., 7 F.3d 1464, 1467 (10th Cir. 1993)). Res judicata bars re-litigation of not only the issues that were actually decided in the prior litigation, but also issues that could have been raised in the prior litigation. See Frandsen v. Westinghouse, 46 F.3d at 978 ("Res judicata . . . precludes the parties or their privies from relitigating the issues that were decided or issues that could have been raised in the earlier action.")(citing Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980)); Pelt v. Utah, 539 F.3d 1271, 1281 (10th Cir. 2008)(same). In other words, "[r]es judicata prevents litigation of all grounds for, or defensesto, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding." Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed. 2d 767 (1979)(citation omitted).³

The factual allegations in the Complaint and the additional uncontested facts identified in Blackstone's Motion to Dismiss establish the following: 1) that the parties in this adversary proceeding are the same as the parties that participated in the litigation arising from Blackstone's Motion for Relief from the Automatic Stay as to Leased Equipment, or in the Alternative, for Adequate Protection Pursuant to 11 U.S.C. § 365(d)(1) (the "Stay Motion"); 2) that Judge...