Valley View Angus Ranch v. Duke Energy Field Serv.

• Decision Date: 08 August 2007
• Docket Number: No. 06-6025.,06-6025.
• Citation: 497 F.3d 1096
• Parties: VALLEY VIEW ANGUS RANCH, INC., an Oklahoma corporation; Otis Culpepper, an individual, Plaintiffs-Appellants, v. DUKE ENERGY FIELD SERVICES, INC., a Colorado limited partnership, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

497 F.3d 1096

VALLEY VIEW ANGUS RANCH, INC., an Oklahoma corporation; Otis Culpepper, an individual, Plaintiffs-Appellants, v. DUKE ENERGY FIELD SERVICES, INC., a Colorado limited partnership, Defendant-Appellee.

No. 06-6025.

United States Court of Appeals, Tenth Circuit.

August 8, 2007.

Wes Johnston (Kenneth R. Johnston with him on the briefs) of Johnston & Associates, Chickasha, OK, for Plaintiffs-Appellants.

Jayne Jarnigan Robertson of Jayne Jarnigan Robertson, P.C. of Oklahoma City, OK, for Defendant-Appellee.

Before HARTZ, EBEL and O'BRIEN, Circuit Judges.

O'BRIEN, Circuit Judge.

Valley View Angus Ranch (Valley View) appeals from the district court's grant of summary judgment in favor of Duke Energy Field Services (Duke). The court concluded Valley View's federal claims were precluded by the doctrines of claim and issue preclusion due to a defense it raised in related state litigation brought by Duke. Preclusion is generally a knotty issue, and particularly so in this case. In resolving the issue the district judge issued a thorough and reasoned opinion. Nevertheless, and most reluctantly, we must reverse.

I. Background

Duke owns and operates a gas pipeline which runs through Valley View's 450-acre ranch in Oklahoma. In October 2003, Otis Culpepper¹, President of Valley View, observed a pipeline leak and notified Duke. According to Valley View, the leak polluted the soils and groundwater. In January 2004, after obtaining the appropriate permits to conduct a subsurface investigation, Duke notified Valley View it intended to install monitoring wells on the property pursuant to a claimed easement interest. However, Valley View would not grant Duke permission to enter the property² and on January 29, 2004, it denied Duke's contractors access.

The next day, Duke filed an action in the District Court of Grady County, Oklahoma (the state suit) seeking injunctive relief. Duke obtained a temporary restraining order (TRO) against Valley View preventing Valley View from interfering with Duke's intended operations on the property.³

On February 25, 2003, prior to answering the state court complaint, Valley View filed an action in federal district court (the federal suit) against Duke seeking damages based on the gas line leak under the theories of trespass, nuisance and unjust enrichment. Two days later, Valley View filed answers in the state suit but did not assert any counterclaims. The same day Valley View filed its answers, Duke amended its complaint in the state suit to seek damages against Valley View in the amount of $3,000 for interference with its easement.

While the state matter was pending trial, Duke filed a motion for partial summary judgment. The state court granted partial summary judgment to Duke based on its conclusion Duke held an easement interest in the property. The state case then went to trial to determine whether Valley View violated its duties under the easement by refusing Duke access to the property, and, if so, the amount of damages. The jury found against Valley View and awarded $1,800 damages. Valley View did not appeal and the verdict became final.

Thereafter, Duke filed a motion for summary judgment in the federal district court contending Valley View's federal claims were barred by the doctrines of issue and claim preclusion. The district court agreed and granted Duke's summary judgment motion. Valley View appeals.

II. Discussion

Valley View asserts the district court erroneously applied the doctrines of issue and claim preclusion in granting summary judgment to Duke. Duke disagrees, claiming both doctrines bar Valley View's federal claims. In the alternative, it asserts Valley View's claims are barred by Oklahoma's compulsory counterclaim statute. We address each argument.

A. Standard of Review

"We review a grant of summary judgment de novo, applying the same legal standard used by the district court under Fed.R.Civ.P. 56(c)." Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1182 (10th Cir.1995). "Summary judgment should be granted if `there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.'" Id. (quoting Fed.R.Civ.P. 56(c)).

We review de novo the district court's conclusions of law on the applicability of issue and claim preclusion. Salguero v. City of Clovis, 366 F.3d 1168, 1172 (10th Cir.2004) (issue preclusion); Frandsen v. Westinghouse Corp., 46 F.3d 975, 977 (10th Cir.1995) (claim preclusion).

Finally, we look to state law to determine if a claim is a compulsory counterclaim, and, if so, the effect of a failure to raise such a claim. Fox v. Maulding, 112 F.3d 453, 456 (10th Cir.1997). Under 28 U.S.C. § 1738,⁴ the preclusive effect of a state judgment is governed by the rules of preclusion of that state. See Marrese v. Am. Academy of Orthopaedic Surgeons, 470 U.S. 373, 380-82, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985) (citing 28 U.S.C. § 1738). We review de novo the district court's application of Oklahoma law on this issue. Fox, 112 F.3d at 457.

B. Res Judicata/Claim Preclusion

"Claim preclusion, formerly known at common law as res judicata, teaches that a final judgment on the merits of an action precludes the parties from relitigating not only the adjudicated claim, but also any theories or issues that were actually decided, or could have been decided, in that action." State of Okla. ex rel. Dep't of Transp. v. Little, 100 P.3d 707, 720 n. 47 (Okla.2004); accord Veiser v. Armstrong, 688 P.2d 796, 800 n. 9 (Okla. 1984). Generally, claim preclusion applies "where the parties and the two causes of action are the same." Wabaunsee v. Harris, 610 P.2d 782, 785 (Okla.1980); accord State of Okla. ex rel. Okla. Bar Ass'n v. Giger, 93 P.3d 32, 38 (Okla.2004); State of Okla. ex rel. Wilson v. Blankenship, 447 F.2d 687, 693-94 (10th Cir.1971).

The district court based its ruling, in part, on the determination Valley View "could have raised" the claim for damages in the state court action but did not do so. (App. at 307.) On appeal, Valley View and Duke frame the issue as whether the state and federal court causes of actions are the same. While these approaches are correct in typical claim preclusion situations, they do not apply here.

The typical claim preclusion scenario unfolds as follows: A plaintiff files suit against a defendant based on a particular transaction and the suit proceeds to a judgment. The plaintiff then files a second action against the same defendant based on the same transaction. The plaintiff's second action would be barred under claim preclusion regardless of the theories raised in the second lawsuit.⁵ See Retherford v. Halliburton Co., 572 P.2d 966, 967, 969 (Okla.1977) ("[T]his jurisdiction is committed to the wrongful act or transactional definition of a `cause of action.' Thus, no matter how many `rights' of a potential plaintiff are violated in the course of a single wrong or occurrence, damages flowing therefrom must be sought in one suit or stand barred by the prior adjudication.").

These rules do not apply to the situation where, as here, a plaintiff (Duke) files suit against a defendant (Valley View) based on a particular transaction (the refusal to allow Duke entry to its easement). The defendant (Valley View) raises a defense⁶ (Duke breached the easement first) and the suit proceeds to judgment. The defendant (Valley View) then files an action against the plaintiff (Duke) based on the same facts forming the basis of its defense in the prior suit. In such a situation, the defendant's claims in the subsequent action are not precluded unless (1) the defendant's success in the latter action would nullify the original judgment or impair the rights established in the original action or (2) a statute required the defendant to bring his claims in the original action. See Meyer v. Vance, 406 P.2d 996, 999 (Okla.1965) (applying the common law rule that a defendant is not precluded from bringing a separate action by failing to bring a claim in the first action); Mitchell v. Williamson, 304 P.2d 314, 319 (Okla. 1956) (barring claim in a latter action which could have asserted in the former action as a counterclaim where the plaintiff's success in the latter action would, in effect, nullify the initial judgment or would impair rights established in the initial action);⁷ see also Martino v. McDonald's Sys. Inc., 598 F.2d 1079, 1084-85 (7th Cir. 1979) (a defendant need not raise an affirmative claim arising from the same facts as an asserted defense, unless a counterclaim statute bars the claim or res judicata itself bars the claim because its prosecution would nullify rights established by the prior action); Restatement (Second) of Judgments § 22 (1982) (Restatement);⁸ Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, 18 Federal Practice and Procedure § 4414 ("Apart from compulsory counterclaim rules, . . . the traditional conclusion has been that purely defensive use of a theory does not preclude a later action for affirmative recovery on the same theory."). The rationale for the general rule applying to defendants who elected not to assert a counterclaim in the prior action is that "the defendant should not be required to assert his claim in the forum or the proceeding chosen by the plaintiff but should be allowed to bring suit at a time and place of his own selection." Restatement § 22 cmt. a.

Thus, the proper analysis is 1) whether Valley View's success in its federal action would nullify the state judgment or impair the rights established in the state action or 2) a statute required Valley View to bring its federal claims in the state action as counterclaims.

1) Nullification of Prior Judgment

Although the corpus juris is not entirely clear about the exact scope of claim preclusion as applied to former defendants, "all that can be said with confidence is that a judgment will be protected against the most obvious assaults of former defendants." Wright & Miller, 18...