Opinion
CASE NO. C14-1133JLR
06-09-2015
DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, FRANKFURT AM MAIN, NEW YORK BRANCH, Plaintiff, v. MEYER IRREVOCABLE TRUST, et al., Defendants.
ORDER GRANTING PLAINTIFF'S MOTION TO STAY THE CASE AND STRIKING PLAINTIFF'S MOTION TO AMEND AND DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
Before the court are Plaintiff DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, New York Branch's ("DZ Bank") combined motion to amend its complaint and stay the case (Combined Mot. (Dkt. # 18)) and Defendants Meyer Irrevocable Trust ("the Trust"), Insurance Choices 4 U, Inc. ("IC4U"), and Insurance Choices For You, Inc.'s ("ICFY") motion for summary judgment (MSJ (Dkt. # 17)). Defendants have filed objections to DZ Bank's motion (Obj. (Dkt. # 22)), and DZ Bank has filed a reply in support of its motion (Reply (Dkt. # 24)) and also a response to Defendants' motion for summary judgment (Resp. (Dkt. # 19)). The court has reviewed the submissions of the parties, the balance of the record, and the applicable law. Being fully advised, the court GRANTS DZ Bank's motion to stay and STRIKES DZ Bank's motion to amend and Defendants' motion for summary judgment without prejudice.
The court deems oral argument to be unnecessary for its resolution of these motions.
II. BACKGROUND
This case arises out of a debt owed to DZ Bank as well as subsequent transfers of assets that DZ Bank alleges were fraudulent. Most of the underlying facts are set forth in this court's order in a related case, see DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, New York Branch v. Louis Meyer (In re Meyer), No. C14-0869JLR, Dkt. # 37 (W.D. Wash.), and are only summarized in part here.
DZ Bank filed an adversary complaint in the bankruptcy proceedings of debtors (and non-parties here) Louis Phillipus Meyer and Lynn Meyer ("the Meyers"). See id. at 6; (Obj. at 1.) The Meyers had personally guaranteed a debt of over $1.7 million to DZ Bank on behalf of Mr. Meyer's business, Choice Cash Advance, LLC ("Choice"), which Choice had taken out in order to finance the purchase of several insurance franchises. See In re Meyer, No. C14-0869JLR, Dkt. # 37 at 3. Choice's assets were collateral for the debt. See id. After Choice and the Meyers began experiencing difficulties, Mr. Meyer initiated a series of transactions that transferred Choice's assets to Meyer Insurance ("MI"), a company that he owned; then transferred MI's assets to Defendant IC4U; then caused Defendant the Trust to purchase all the stock of IC4U; and finally caused the Trust to sell IC4U to another entity. See id. at 5. In the adversary proceedings, DZ Bank alleged that these transfers were fraudulent and that as a result a portion of the Meyers' overall indebtedness was non-dischargeable under § 523(a)(2)(A) of the Bankruptcy Code. See id. at 6-7.
Defendants refer to this entity as "Choice Insurance." (Obj. at 1.)
On May 9, 2014, the United States Bankruptcy Court for the Western District of Washington entered a non-dischargeable judgment in favor of DZ Bank and against the Meyers in the amount of $123,200.00, which was the value of the MI assets traceable to DZ Bank's collateral. See id. at 7; (Combined Mot. at 2; Obj. at 4.) DZ Bank appealed to this court on June 13, 2014, arguing that the judgment should have been for $385,000.00—the value of all the MI assets transferred to IC4U. See In re Meyer, No. C14-0869JLR, Dkt. # 1 at 96-98 (Notice of Appeal), Dkt. # 12 (Appellant's Brief). The legal basis of this argument is the Washington Uniform Fraudulent Transfers Act ("WUFTA"). See id. Dkt. # 37 at 11-12. The court denied DZ Bank's appeal and affirmed the bankruptcy court. See id. at 19. The court concluded that WUFTA requires a plaintiff-creditor at a minimum to demonstrate some claim to the transferred assets before a transfer can be deemed fraudulent under WUFTA. See id. at 11-19. Because MI was not indebted to DZ Bank and because DZ Bank could trace its collateral to only $123,200.00 of MI's assets, the court held that DZ Bank was entitled to a judgment of only $123,200.00. See id. at 18-19. On January 27, 2015, DZ Bank appealed this court's order to the Ninth Circuit. See id. Dkt. # 39.
The bankruptcy court ruled on summary judgment that DZ Bank knew of and consented to the transfer from Choice to MI and that such transfer therefore could not form the basis of a fraudulent transfer claim. See In re Meyer, No. C14-0869JLR, Dkt. # 37 at 4 n.2. DZ Bank did not challenge that ruling in its appeal from the bankruptcy court's final judgment. See id.
On July 25, 2014, after the bankruptcy court entered its final judgment, DZ Bank filed the instant lawsuit asserting fraudulent transfer claims against Defendants for their receipt of the assets transferred by the Meyers and MI. (See Compl. (Dkt. # 1); Combined Mot. at 4.) DZ Bank's complaint in this case prays for judgment in the amount of $123,200.00; fees, costs, and interest; recovery of the transferred property; and "such further relief as the court deems just and proper under the circumstances." (Compl. ¶¶ 28, 33, 38.) After Defendants answered, the court issued a scheduling order which did not set a deadline for filing amended pleadings. (Sched. Ord. (Dkt. # 16).)
This court recently received this case from Judge Ricardo S. Martinez on transfer as related to In re Meyer. (See Order Reassigning Case (Dkt. # 26).)
On January 14, 2015, following this court's order in In re Meyer, the Meyers sent DZ Bank a check for $123,290.00. (See Stern Decl. (Dkt. # 17-1) ¶¶ 2-3 Exs. 1-2.) DZ Bank accepted the check and recorded a satisfaction of its judgment against the Meyers on February 20, 2015. (Id. ¶ 4 Ex. 3.) The satisfaction is conditional, however, insofar as it notes DZ Bank's pending appeal to the Ninth Circuit and provides that DZ Bank's acceptance of the amount of the "unsatisfactory judgment" does not satisfy its entire claim. (Id.)
On March 4, 2015, Defendants filed their motion for summary judgment. (See MSJ.) Defendants' motion, which is two pages in length, seeks dismissal of DZ Bank's claims on the basis that DZ Bank has received the entire sum sought in its complaint; namely, $123,200.00. (See id.) Defendants argue that DZ Bank's acceptance of this sum from the Meyers constitutes a release of Defendants, who are the Meyers' joint tortfeasors according to DZ Bank's allegations. (See id.) On March 23, 2015, DZ Bank filed both its response to Defendants' motion and its combined motion to amend its complaint and stay the case. (See Resp. at 1; Combined Mot. at 1.)
DZ Bank's combined motion asks the court to permit DZ Bank to amend its complaint to seek damages in the amount of $385,000.00, and requests that the court stay all proceedings in this case pending the outcome of DZ Bank's appeal in In re Meyer. (Combined Mot. at 2.) In support of its motion to amend, DZ Bank argues that it should be permitted to pursue "all of its potential monetary damages against the Defendants," and that amendment will not prejudice Defendants. (Id. at 5-6.) Regarding its motion to stay, DZ Bank contends that the outcome of its appeal in In re Meyer will significantly impact this litigation. (See id. at 2 ("If DZ Bank's appeal is successful, DZ Bank's damages against the defendants herein will be established at $385,000. If unsuccessful, DZ Bank may have no claims against the defendants herein, as the amount of damages originally sought by DZ Bank, $123,200, has been paid.").) Accordingly, DZ Bank concludes that it would not be economical for the court or the parties to continue litigating this case while DZ Bank's appeal is pending. (Id. at 2, 6.) The parties' motions are now before the court.
III. DISCUSSION
The court first turns to DZ Bank's request to stay this case pending the outcome of its appeal before the Ninth Circuit in In re Meyer. (Mot. at 2.) A district court has the discretionary power to stay its proceedings. Lockyer v. Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005). This power to stay is "incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254 (1936); see also Gold v. Johns-Manville Sales Corp., 723 F.2d 1068, 1077 (3rd Cir. 1983) (holding that the power to stay proceedings comes from the power of every court to manage the cases on its docket and to ensure a fair and efficient adjudication of the matter at hand). When considering whether to stay a case, the court weighs a series of competing interests: (1) the possible damage that may result from the granting of the stay; (2) the hardship or inequity which a party may suffer in being required to go forward; and (3) the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay. CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962) (citing Landis, 299 U.S. at 254-55); see also Lockyer, 398 F.3d at 1110.
With respect to the first factor—possible damage if a stay is granted—Defendants object to DZ Bank's requested stay but offer no discussion of how a stay might damage them. (See Obj. at 8-9.) Rather Defendants simply assert that DZ Bank improperly seeks to "keep Defendants on the hook for another year while it pursues a frivolous appeal." (Id. at 9.) Defendants fail to explain, however, what harm they might suffer from waiting for the resolution DZ Bank's appeal. Furthermore, delay alone cannot be a sufficient reason not to stay a case, as every stay by its very nature causes delay. Cf. Lockyer, 398 F.3d at 1112 (noting that the objecting party was alleging ongoing harm for which it sought injunctive relief and that delay might therefore damage the objecting party).
The court also notes that Defendants' characterization of DZ Bank's appeal as "frivolous" (Obj. at 9) and involving "matters addressed by long-standing law" (id. at 5 n.4) is inaccurate. As the court noted in its order affirming the bankruptcy court, the court was unable to find any authority interpreting WUFTA on the precise issue before the court. See In re Meyer, No. C14-0869JLR, Dkt. # 37 at 14. Consequently, the court interpreted WUFTA with reference to Washington corporate law and federal case law construing analogous provisions in the Bankruptcy Code. See id. at 14-18. Although the court stands by its analysis, it is hardly beyond the realm of possibility that the Ninth Circuit might disagree with the court's reasoning.
The court next considers the second factor: whether DZ Bank might suffer hardship or inequity by being required to go forward. See CMAX, Inc., 300 F.2d at 268. DZ Bank argues that requiring it to go forward here could cause it to waste resources. (See Mot. at 2, 6.) This argument is premised on the idea that the Ninth Circuit's decision may either significantly advance DZ Bank's position in this case or spell the end of its claims against Defendants. (See id. at 2.) As discussed in more detail below under the third factor, the court finds this argument persuasive and therefore concludes that this factor favors granting a stay.
Finally, the court concludes that the third factor—whether a stay would further the orderly course of justice—weighs in favor of a stay. Without expressing an opinion on the merits of this case, the court finds that there is a significant possibility that the Ninth Circuit's decision in In re Meyer will simplify the issues, proof, and questions of law in this case. See CMAX, Inc., 300 F.2d at 268. The transfers at issue in that case and this one are nearly identical. (Compare Compl.) with In re Meyer, No. C14-0869JLR, Dkt. # 37. If the Ninth Circuit determines that the transfers in that case were fraudulent as to DZ Bank in the amount of $385,000.00, the contested issues in this case may be reduced. If on the other hand the Ninth Circuit rejects DZ Bank's appeal, this case may end, as DZ Bank's damages would likely be established at only $123,200.00, an amount which DZ Bank concedes it has already received from the Meyers. (See Mot. at 2.) In either scenario a stay pending the Ninth Circuit's ruling would further the orderly course of justice and could provide a substantial economy in judicial and party resources. See CMAX, Inc., 300 F.2d at 268.
Defendants suggest that res judicata would bar DZ Bank's claims against them even if DZ Bank prevails on its appeal before the Ninth Circuit. (See Obj. at 10-12.) Defendants' discussion of res judicata is confused and abortive, however, and neglects to develop arguments and offer evidence without which the court cannot render a decision on this issue. For example, Defendants assert but offer no evidence that DZ Bank knew during the bankruptcy proceedings about the alleged transfers involving ICFY. (See id. at 11 n.7.) DZ Bank contradicts that assertion in its complaint (see Compl. ¶ 23), and the court will not simply resolve the conflict in Defendants' favor without any supporting evidence before it. Defendants also fail to discuss any of the criteria that inform the identity-of-claims analysis and offer only general principles regarding the privity inquiry. (See Obj. at 10-11); see also, e.g., Harris v. Cnty. of Orange, 682 F.3d 1126, 1132 (9th Cir. 2012) (discussing the elements of res judicata—identity of claims, final judgment on the merits, and identity of or privity between parties—as well as the four criteria that courts use to determine identity of claims); Headwaters Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1053-54 (9th Cir. 2005) (discussing the privity requirement); Zweizig v. Rote, No. 3:14-cv-00406-ST, 2014 WL 7229202, at *5-7 (D. Or. Dec. 16, 2014). Accordingly, the court declines to render a decision on the issue of res judicata at this time.
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In sum, the court finds that the relevant factors favor staying this case until the Ninth Circuit issues a decision on DZ Bank's pending appeal in In re Meyer. See CMAX, Inc., 300 F.2d at 268. Furthermore, having decided that a stay is appropriate, the court concludes that it would not be a proper use of judicial resources to rule on DZ Bank's motion to amend or Defendants' motion for summary judgment at this time. The court therefore strikes DZ Bank's motion to amend and Defendants' motion for summary judgment but without prejudice to re-raising the issues and arguments contained therein after the court lifts the stay.
IV. CONCLUSION
For the foregoing reasons, the court GRANTS in part DZ Bank's combined motion (Dkt. # 18). Specifically, the court GRANTS DZ Bank's motion to stay and SUSPENDS all current case schedule deadlines pending a decision by the Ninth Circuit on DZ Bank's appeal in In re Meyer. In addition, the court STRIKES DZ Bank's motion to amend and Defendants' motion for summary judgment (Dkt. # 17) without prejudice to re-raising the issues and arguments contained therein after the court lifts the stay. Finally, the court ORDERS the parties to submit a joint status report within 14 days of the date on which the Ninth Circuit issues its decision (not mandate) in In re Meyer or the case is otherwise resolved.
Dated this 9th day of June, 2015.
/s/_________
JAMES L. ROBART
United States District Judge