Ram Technical Services, Inc. v. Koresko

• Jurisdiction: Oregon
• Court: Oregon Court of Appeals
• Writing for the Court: Haselton
• Citation: Ram Technical Services, Inc. v. Koresko, 171 P.3d 374, 215 Or. App. 449 (Or. App. 2007)
• Decision Date: 17 October 2007
• Docket Number: CV04100199; A130143.
• Parties: RAM TECHNICAL SERVICES, INC., an Oregon corporation; Charles Stalnaker; and Susan Stalnaker, Plaintiffs-Appellants Cross-Respondents, v. John J. KORESKO; Ram Technical Services Voluntary Employees' Beneficiary Association; Regional Employers' Assurance Leagues Voluntary Employees' Beneficiary Association; and Pennmont Benefit Services, Inc., a Pennsylvania corporation, Defendants-Respondents Cross-Appellants, and Great Southern Life Insurance Company, a Texas corporation; The Corben Educational Services, Inc., an Oregon corporation; and Thomas W. Crosswhite, Defendants-Respondents.

171 P.3d 374

215 Or. App. 449

RAM TECHNICAL SERVICES, INC., an Oregon corporation; Charles Stalnaker; and Susan Stalnaker, Plaintiffs-Appellants Cross-Respondents, v. John J. KORESKO; Ram Technical Services Voluntary Employees' Beneficiary Association; Regional Employers' Assurance Leagues Voluntary Employees' Beneficiary Association; and Pennmont Benefit Services, Inc., a Pennsylvania corporation, Defendants-Respondents Cross-Appellants, and Great Southern Life Insurance Company, a Texas corporation; The Corben Educational Services, Inc., an Oregon corporation; and Thomas W. Crosswhite, Defendants-Respondents.

CV04100199; A130143.

Court of Appeals of Oregon.

Argued and Submitted July 23, 2007.

Decided October 17, 2007.

Craig J. Capon, Eugene, argued the cause for appellants-cross-respondents. With him on the briefs were Karla Alderman, Arden J. Olson, and Harrang Long Gary Rudnick P.C.

Scott J. Kaplan, Portland, argued the cause for respondents-cross-appellants. With him on the briefs were Charles F. Adams and Stoel Rives LLP.

R. Daniel Lindahl, Portland, argued the cause for respondent Great Southern Life Insurance Company. With him on the brief were Lisa E. Lear and Bullivant Houser Bailey PC, and Andrew C. Hanan and Conrad O'Brien Gellman & Rohn, Philadelphia.

Lee Wyatt argued the cause for respondents The Corben Educational Services, Inc., and Thomas W. Crosswhite. With him on the brief was LAWyatt, LLC.

Before HASELTON, Presiding Judge, and BREWER, Chief Judge, and ROSENBLUM, Judge.

HASELTON, P.J.

Plaintiffs appeal, challenging the dismissal on summary judgment, ORCP 47 B, of their common-law fraud claim against defendants as being barred by claim preclusion arising from the determination of prior federal litigation between the parties or, alternatively, by the expiration of the statute of limitations.¹ As amplified below, we conclude that, because plaintiffs could have raised their common-law claims in their federal litigation, they are precluded from litigating those claims in state court. Accordingly, we affirm.²

The operative facts for purposes of our review are uncontroverted. On July 2, 2003, plaintiffs filed an action against defendants in the United States District Court for the District of Oregon. In their complaint, plaintiffs pleaded, inter alia, claims for "rescission" and "constructive trust" based on purported misrepresentations that induced plaintiffs, in 2000, to establish a "voluntary employee benefits association" (VEBA) benefit plan for employees of plaintiff Ram Technical Services, Inc., and to purchase life insurance policies as a means of funding the VEBA plan. In particular, plaintiffs alleged that they had been told by certain defendants that they would not be required to make annual contributions to sustain the plan; however, by no later than June 11, 2002, plaintiffs first learned that those representations were false and that they were, in fact, required to make annual payments. Plaintiffs further alleged that the VEBA plan was "an employee welfare benefit plan created pursuant to the provisions of the Employee Retirement Income Security Act of 1974" (ERISA) and that, given defendants' misrepresentations and other conduct, plaintiffs were entitled to rescission, because "[r]escission of an ERISA plan, the formation of which was induced by fraud, is `appropriate equitable relief' under 29 U.S.C. § 1132(a)(3)(B)." Based on the same allegations, plaintiffs also sought the imposition of a constructive trust for "funds [that] arose from Plaintiffs' payments."

Defendants moved for dismissal of those claims on a variety of grounds, including failure to state a claim, FRCP 12(b)(6). In April 2004, the district court granted defendants' motions to dismiss. In its "Opinion and Order," the district court described the gravamen of plaintiffs' claims and defendants' grounds for seeking dismissal pursuant to Rule 12(b)(6):

"Plaintiffs bring suit under 29 U.S.C. § 1132(a)(3), which authorizes a civil action `by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.]'

"Defendants argue that plaintiffs fail to state a claim under this statute, because the plaintiffs neither seek to `enjoin any practice' that violates ERISA or the benefits plan, nor do they request equitable relief to redress an ERISA violation or a term of the plan. Rather, plaintiffs ask this court to rescind an entire benefits plan that the plaintiffs allegedly were fraudulently induced into forming based on misrepresentation about the required payment schedule."

Ram Technical Services v. Koresko, No. 03-6163-AA, 2004 WL 1050888 (D. Or. Apr. 15, 2004).

The district court observed that "[t]he key issue before the court * * * is whether § 1132, which is designed generally to enforce plan benefits and provisions of ERISA, can govern a dispute about whether a formation defect vitiates a putative agreement establishing a benefits plan." Ultimately, the court answered that question in the negative:

"I find that the type of breach alleged by plaintiffs is not the type that § 1132 seeks to redress. Because the alleged formation defect would preclude the existence of any `plan' that might have been governed by ERISA, the plaintiffs do not state a claim for enforcement of a term of their plan. * * *

"Moreover, plaintiffs have provided no authority demonstrating that defendants' alleged fraudulent inducement violates an `ERISA provision.' To the contrary, many courts have determined that ERISA does not apply to a claim of fraud in the inducement, which occurs before the establishment of a benefits plan and may be redressed under state common law principles. * * *

"Finally, the plaintiffs seek a type of equitable relief that is not available under the statute. The statute allows equitable relief only to `redress [plan] violations or * * * enforce any provisions [of ERISA] or the plan.' 29 U.S.C. § 1132. As explained above, plaintiffs do not seek to redress either type of breach."

For various reasons, which are immaterial to our disposition, the district court did not immediately enter a judgment of dismissal. On February 28, 2005, the court issued a minute order memorializing the dismissal of the federal action.

Meanwhile, on October 11, 2004, six months after the district court granted defendants' motions to dismiss-and two years and four months after plaintiffs learned that defendants' representations were false-plaintiffs filed this action in Clackamas County Circuit Court. Plaintiffs' complaint alleged claims of fraud and "constructive trust" that were based on the same circumstances, specifically, defendants' alleged misrepresentations and plaintiffs' alleged detrimental reliance on those representations, which were the bases of plaintiffs' claims in the federal litigation. Indeed, the allegations of the parties' conduct were a virtual "cut-and-paste" of the parallel, operative allegations in the federal court complaint, and the allegations of the federal and state court "constructive trust" claims were, except for a reference in the former to "appropriate equitable relief" under ERISA, identical.

Defendants subsequently moved for summary judgment on a variety of grounds, including statute of limitations and, as particularly pertinent here, claim preclusion.³ The thrust of defendants' claim preclusion argument was that plaintiffs' common-law fraud claim could have been brought, by way of supplemental jurisdiction, in the federal litigation and that no recognized exception to claim preclusion applied in these circumstances. Those contentions, in turn, implicated a variety of matters, which the parties disputed, including (1) the proper application of Oregon authority addressing, for claim preclusion purposes, whether pendent claims should reasonably have been asserted in the prior federal litigation;⁴ (2) the likelihood that the federal court would have retained a pendent state law fraud claim following dismissal of a predicate ERISA-based claim; and (3) the significance, if any, with respect to exceptions to claim preclusion, of certain remarks by defense counsel and by the trial judge during the federal proceedings.

The circuit court allowed summary judgment against plaintiffs' fraud claim on alternative grounds of claim preclusion and statute of limitations,⁵ and also dismissed plaintiffs' other claims.⁶

Plaintiffs appeal. Before addressing the substance of their arguments, we emphasize two considerations that frame our analysis. First, plaintiffs' arguments pertain solely to dismissal of their fraud claim. That is, plaintiffs advance no distinct analysis pertaining to their "constructive trust" claim, perhaps because they understand the two to be inextricably intertwined. Second, claim preclusion and statute of limitations are alternative and independently sufficient grounds for dismissal of the fraud claim. Thus, if we affirm the trial court on one ground, we need not address the other.

We conclude for the reasons that follow that claim preclusion barred the prosecution of plaintiffs' common-law fraud claim. Specifically, given the broad application and availability of supplemental jurisdiction, plaintiffs' fraud claim could and should reasonably have been asserted in the prior federal litigation.

In general, the doctrine of claim preclusion, the modern form of res judicata, acts to preserve the finality of judgments, prevent parties from relitigating the same issues in different suits, and avoid contradictory judgments from different courts. Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981); Headwaters Inc. v. U.S. Forest Service, 399 F.3d 1047, 1051-57 (9th Cir.2005); Drews v. EBI Companies,...