Page et al v. Farm Credit Services of America, PCA
Filing
18
MEMORANDUM AND ORDER denying 7 Motion to Dismiss; denying 15 Motion for Leave to File; denying 16 Motion for Hearing. Signed by District Judge Richard D. Rogers on 7/2/2013. (meh)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
JOSEPH H. PAGE and
FRANCES K. PAGE, Individuals,
Plaintiffs,
v.
FARM CREDIT SERVICES OF AMERICA,
PCA, a federally chartered
instrumentality of the United
States,
Defendant.
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Case No. 13-2073-RDR
MEMORANDUM AND ORDER
This matter is presently before the court upon defendant=s motion
to dismiss or, in the alternative, to transfer venue. 1 Defendant
seeks dismissal based upon res judicata.
In the alternative,
defendant seeks to transfer this case to the United States District
Court for the District of Nebraska.
Having carefully reviewed the
arguments of the parties, the court is now prepared to rule.
1
Plaintiffs have filed a motion for hearing and a motion to file
sur-reply. The court shall deny both motions. The court believes
that the parties have thoroughly stated the facts and their positions
concerning the issues at hand. There is no need for a hearing on
defendant=s motion.
Moreover, the court finds no need to allow
plaintiffs to file a sur-reply. The court allows sur-replies only
in rare circumstances, such as Awhere a movant improperly raises new
arguments in a reply.@ EEOC v. International Paper Co., 1992 WL
370850 at * 10 (D.Kan. Oct. 28, 1992). Plaintiffs argued in their
motion that a sur-reply needed to be filed because the defendant
Acontinued to misrepresent various facts@ in its reply. The court
is not persuaded that merely continuing to misrepresent facts is
sufficient to justify the need for a sur-reply. Moreover, the court
finds that the parties have adequately set forth the applicable
facts.
I.
The claims in plaintiffs= complaint arise from two loans that
they had with the Farm Credit Services of America (FCSA).
Plaintiffs
had received the loans to purchase cattle and feed for a feedlot in
Cedar Rapids, Nebraska that was operated by Big Drive Cattle, LLC,
an entity in which plaintiffs had ownership interest.
Plaintiffs
claim that, during the course of the loans, the defendant failed to
properly monitor and inventory the cattle pursuant to the security
agreement entered into between the parties.
claims
of
negligent
misrepresentation,
Plaintiffs assert
negligence,
fraudulent
misrepresentation and breach of good faith and fair dealing.
II.
The facts as set forth in the various pleadings filed by the
parties are as follows.
On or about March 10, 2010, Big Drive
Cattle, LLC obtained a loan from FCSA and its related entity, Farm
Credit Services of America, FLCA (FLCA) to finance Big Drive=s
purchase of a cattle feedlot in Cedar Rapids, Nebraska.
is an entity co-owned and operated by plaintiffs.
Big Drive
Prior to the
purchase, plaintiffs had co-leased the feedlot, sending and feeding
cattle there and selling cattle from there.
At the same time, Big
Drive obtained a loan from FCSA and FLCA to operate the feedlot.
The
court shall collectively refer to these loans as the ABig Drive Loans.@
Big Drive provided collateral for the Big Drive Loans which included
cattle
at
the
feedlot.
In
addition,
2
plaintiffs
personally
guaranteed payment of the Big Drive Loans.
On or about March 10, 2010, plaintiffs sought and obtained a
$2,500,000 loan from FCSA to finance their purchase of cattle to be
fed at the feedlot. Plaintiffs allege this loan functioned as an
operating line of credit.
In January of 2011, plaintiffs approached
FCSA for an additional loan, the proceeds of which were to be used
to purchase grain for storage at the feedlot. FCSA loaned plaintiffs
$810,000 on January 19, 2011.
as the APage Loans.@
The court shall refer to these loans
Plaintiffs executed guarantees of the Page Loans
on behalf of their revocable trust.
Plaintiffs also granted FCSA
security interests in cattle and corn as collateral for the Page Loans
pursuant to the terms of a security agreement dated March 10, 2010.
Plaintiffs authorized A. J. Ostrander, as manager of Big Drive, to
initiate advances on their $2,500,000 loan.
Plaintiffs allege that
they learned in February of 2011 that many cattle at the feedlot,
including plaintiffs= cattle, Awere missing or had been sold, with
no money being paid to the owner of the specific cattle missing or
sold.@
According to plaintiffs, they were notified by FCSA on or
about March 2, 2011 that their loan for their operating line of credit
was being terminated for inadequate collateralization.
On September 9, 2011, the owners of Big Drive placed Big Drive
into bankruptcy in the United States Bankruptcy Court for the
District of Nebraska.
Plaintiffs filed a proof of claim in the Big
3
Drive Bankruptcy seeking to recover $2,315,000.00.
The stated basis
for their claim was: ACattle on Debtor=s premises that were lost, sold
or moved off premises without owners consent and/or payment, and corn
on Debtor=s premises involved in fire loss, or utilized by Debtor
without consent or payment.@ The Official Committee of Unsecured
Creditors in the Big Drive Bankruptcy objected to the Pages= proof
of claim claiming it lacked sufficient evidence of the cause, nature
and extent of their alleged losses.
Plaintiffs filed a response to
the objection and provided further detail regarding their alleged
loss of cattle and corn at the Feedlot.
Plaintiffs later agreed to
settle their claim.
On September 22, 2011, FCSA and FLCA filed an action in the
United States District Court for the District of Nebraska against
the plaintiffs and the owners of Big Drive seeking to recover under
their personal guarantees of the Big Drive Loans.
At the Pages=
request, the case was referred to the United States Bankruptcy Court
for the District of Nebraska.
While the action was pending before
the Nebraska Bankruptcy Court, the Pages filed a counterclaim against
FCSA and FLCA alleging, inter alia, that FCSA and FLCA had breached
their alleged duty to properly count the cattle at the feedlot and
to accurately report that count to the Pages.
FCSA and FLCA moved
to dismiss the Pages= counterclaim on the grounds that the Nebraska
Bankruptcy
Court
lacked
jurisdiction
4
over
the
state
law
counterclaims or, alternatively, for a more definite statement.
The
Bankruptcy Court agreed with FCSA and FLCA=s jurisdictional argument
and recommended that the Nebraska District Court withdraw the
reference. The Nebraska District Court agreed and the case was
transferred back to the Nebraska District Court.
After the action had been returned to the Nebraska District
Court, the Pages again filed a counterclaim based on the allegations
that FCSA undertook a duty to accurately keep count of cattle and
inventory at the feedlot, that the duty was breached, that FCSA
misrepresented the cattle and inventory at the feedlot and that the
Pages were damaged as a result. FCSA and FLCA again filed a motion
to dismiss the counterclaim or, alternatively, for a more definite
statement.
The District of Nebraska granted this motion to dismiss
without prejudice.
The Pages then filed an amended counterclaim. In their amended
counterclaim, the Pages alleged: AFarm Credit, by and through its
employee and/or agent, made representations to the Pages regarding
the
state
of
the
collateral,
specifically
monthly
statements
detailing the cattle and inventory represented on the feed lot.@
The
Pages also alleged that A[t]he Pages relied in good faith upon [Farm
Credit] to accurately report its collateral@ and that A[Farm Credit=s]
failure to properly and accurately report the cattle inventory after
representing it to the Pages it was doing so directly harmed the
5
Pages.@
The Pages further alleged that FCSA undertook a duty to
accurately keep count of cattle and inventory at Big Drive and
communicated that information to the Pages and that the Pages were
damaged as a result.
On August 3, 2012, the Pages= amended counterclaim was dismissed
with prejudice.
The Nebraska Federal Court=s Memorandum and Order
dismissing the amended counterclaim stated, in part:
Defendants attempted to plead their counterclaims twice,
without success. Even after receiving direction from the
Court in its previous Memorandum and Order, deficiencies
similar to those in the original counterclaims remain.
Nothing in the Defendants= briefs in response to the
Plaintiffs= motions to dismiss suggests that further
amendment of the counterclaims would be likely to cure the
deficiencies. This case was filed on September 22, 2011,
and the matter of the Defendants= counterclaims has been
before this Court since the filing of the Plaintiffs=
original motions to dismiss on February 20, 2012. Any
delays in the progress of the case have been due to the
Defendants= requests for extensions of time to answer and
file briefs. Any further delay to allow the Defendants a
third attempt to plead their counterclaims would result
in unfair prejudice to the Plaintiffs. Therefore, the
amended counterclaims will be dismissed with prejudice.
The Pages appealed the dismissal of their amended counterclaim
to the United States Court of Appeals for the Eighth Circuit.
Oral
argument in that appeal was scheduled for May 15, 2013 in Omaha,
Nebraska.
III.
6
The defendants contend that res judicata bars the instant claims
made by the plaintiffs.
The defendants, relying on Nebraska law,
argue that the claims asserted here were considered or should have
been considered by the Nebraska District Court.
They point to the
claims where the Pages allege that FCSA had an obligation to them
to accurately count the cattle at the feedlot and report that count
to them.
Plaintiff contends that res judicata does not apply here because
the claims here are different than those raised in the Nebraska
District Court concerning the Big Drive Loans.
Plaintiffs point out
that the claims in this case arise from the personal loans they
entered into with the FCSA, not the business loans that Big Drive
entered into with the FCSA.
Although the nature of the claims has
some similarities, plaintiffs argue that the specific loans involved
are indeed distinct and different here and, thus, preclude the
application of res judicata.
The res judicata effect of a judgment rendered by a federal court
in a diversity action is determined by federal common law.
Tri-State
Truck Ins. Ltd. v. First Nat=l Bank of Wamego, No. 12-2291-KHV, 2013
WL 1087608 at *10 (D.Kan. Mar. 14, 2013).
In so doing, the forum
court should apply the law of the state in which the judgment was
rendered.
Id.
Here, the court must consider the law of Nebraska.
Nebraska law regarding res judicata provides that a plaintiff is
7
barred from re-litigating:
a matter that has been directly addressed or necessarily
included in a former adjudication if (1) the former
judgment was rendered by a court of competent
jurisdiction, (2) the former judgment was a final
judgment, (3) the former judgment was on the merits, and
(4) the same parties or their privies were involved in both
actions.
Eicher v. Mid Am. Fin. Inc. Corp., 270 Neb. 370, 702 N.W.2d 792, 809
(2005)(citations omitted).
The court is in agreement with plaintiffs here.
The matters
involved in this case were not litigated by the parties in the
Nebraska action.
The defendant has suggested that these claims
should have been litigated in the Nebraska action.
The court is not
persuaded that these claims had to be raised there since the loans
involved in this case were not a part of that case.
These claims
had to be raised in the Nebraska litigation if they constituted
compulsory counterclaims.
The defendant has made no argument that
these claims constituted compulsory counterclaims and, given the
fact that these claims arise from different loans, the court is not
convinced that they constitute compulsory counterclaims.
The court
recognizes that the claims raised here involve similar allegations
to
those
raised
in
the
Nebraska
litigation.
These
similar
allegations arise from the fact that the defendant was responsible
for the administration of both of these sets of loans.
Nevertheless,
since different loans are involved, plaintiffs can assert these
8
claims in this action.
The doctrine of res judicata does not apply.
IV.
With this decision, the court shall consider defendant=s
argument that this case should be transferred to the District of
Nebraska pursuant to 28 U.S.C. ' 1404(a).
The defendant contends
that all of the factors that the court must consider under ' 1404(a)
point to transfer to the Nebraska federal court.
Plaintiffs, on the
other hand, suggest that the court should favor their forum
selection.
They contend that transfer will simply shift the
inconvenience and deny them their choice of forum.
Under 28 U.S.C. ' 1404(a), a district court may transfer a case
to another venue in which it might have been brought A[f]or the
convenience of parties and witnesses, in the interest of justice.@
AThe party moving to transfer a case pursuant to ' 1404(a) bears the
burden of establishing that the existing forum is inconvenient.@
Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1515
(10th Cir. 1991).
In deciding whether the movant has met that burden,
a district court should consider:
the plaintiff=s choice of forum; the accessibility of
witnesses and other sources of proof, including the
availability of compulsory process to insure attendance
of witnesses; the cost of making the necessary proof;
questions as to the enforceability of a judgment if one
is obtained; relative advantages and obstacles to a fair
trial; difficulties that may arise from congested dockets;
the possibility of the existence of questions arising in
the area of conflict of laws; the advantage of having a
9
local court determine questions of local law; and, all
other considerations of a practical nature that make a
trial easy, expeditious and economical.
Id. at 1516 (internal quotation marks omitted). Unless weighing these
factors demonstrates that Athe balance is strongly in favor of the
movant, the plaintiff's choice of forum should rarely be disturbed.@
Employers Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1167
(10th Cir. 2010)(brackets and internal quotation marks omitted).
AThe party moving to transfer a case pursuant to ' 1404(a) bears the
burden of establishing that the existing forum is inconvenient.@
Id.(quoting Scheidt v. Klein, 956 F.2d 963, 965 (10th Cir. 1992)).
AMerely shifting the inconvenience from one side to the other,
however, obviously is not a permissible justification for a change
of venue.@
Id.(quoting Scheidt, 956 F.2d at 966).
The defendant contends that nearly all of the facts relevant
to plaintiffs’ claims occurred in Nebraska-Beither at FCSA=s offices
or at the feedlot.
Based upon the allegations contained in
plaintiffs’ complaint, defendant asserts that the following events
occurred in Nebraska: (1) FCSA=s failure to maintain accurate cattle
counts; (2) FCSA=s failure to monitor sales revenue generated by
cattle sales; (3) FCSA=s failure to properly account for monies from
the sale of plaintiffs= collateral; (4) FCSA=s failure to monitor the
sale of cattle; and (5) misled plaintiffs as to the number of cattle
at the feedlot resulting in plaintiff purchasing more corn than
10
necessary.
The defendant further argues that plaintiffs have
alleged that FCSA made fraudulent statements to their manager in
Nebraska.
The defendant contends that only one allegation was made
by plaintiffs concerning Kansas: that they received reports in Kansas
concerning the number of cattle in Nebraska.
The defendants also assert that most of the witnesses and
relevant documents are located in Nebraska.
The defendant notes
that it plans to call eight FCSA witnesses, and all of them reside
outside of Kansas.
The defendant further plans to call at least six
other witnesses, and they reside in either Nebraska or Colorado.
They note that plaintiffs have only two party witnesses who are
located in Kansas, themselves.
The defendant further notes that
most of the material documents are in the possession of non-party
witnesses who are located in Nebraska.
Finally, the defendant contends that other factors support
transfer.
The defendant contends that the cost of this litigation
would be greater in Kansas because most of their witnesses are in
Nebraska.
They further note the lack of subpoena power over some
witnesses by this court.
The defendant further argues that the fact
that other litigation between these parties has occurred in Nebraska
weighs strongly in favor of transfer of this case to Nebraska.
Plaintiffs contend that the facts support denial of defendant=s
motion to transfer.
Plaintiffs argue that the case should remain
11
in Kansas because (1) the loans at issue were signed in Kansas and
then mailed to the defendant; (2) the loan proceeds were used to buy
cattle and most of those purchases were made in Kansas; (3) the
defendant submitted monthly statements to them in Kansas showing
plaintiffs= inventory; and (4) the defendant provided notice of
termination of the loan to plaintiffs in Kansas.
Plaintiffs further
note that the alleged misrepresentations by defendant were made to
plaintiff in Kansas.
Plaintiffs allege that the Asignificant and material@ witnesses
in this case reside in Kansas.
witnesses who reside in Kansas.
Plaintiffs have identified nine
Plaintiffs also counter that Amany,
if not more of the documents are located in Kansas, not Nebraska.@
Plaintiffs state that it would be more costly for them to litigate
this case in Nebraska than it would be for the defendants to litigate
this case in Kansas. Plaintiffs further note that the defendant chose
to transact business in Kansas and that forcing it to litigate in
Kansas would not be unfair.
Plaintiffs argue that the law of Kansas
governs its claims because the loans were entered into in Kansas and
the misrepresentations were made in Kansas.
In reply, the defendant contends that certain witnesses,
particularly those located in Nebraska, would be important to the
claims asserted by plaintiffs.
that
the
testimony
of
the
In particular, the defendant asserts
former
12
manager
of
Big
Drive,
Mr.
Ostrander, would be Acritical,@ and his last known address is in
Nebraska.
The defendant further indicates that most of Big Drive=s
records are in the Ahands of accountants and/or attorneys who reside
in Nebraska.@
Finally, the defendant suggests that many of the
witnesses noted by plaintiffs would not have information regarding
the Big Drive inventories and plaintiffs have failed to provide any
factual support for their contention that they do possess such
information.
A. Plaintiffs= Choice of Forum
AUnless the balance is strongly in favor of the movant, the
plaintiff's choice of forum should rarely be disturbed.@
Emp=rs Mut.
Case. Co., 618 F.3d at 1167B68(quoting Scheidt, 956 F.2d at 965).
The
plaintiff’s choice of forum does receive less deference if the
plaintiff does not reside in the district or if the facts underlying
the suit have no significant connection to the chosen forum.
id. at 1168(citations omitted).
against transfer.
See
The court finds this factor weighs
Plaintiffs reside in Kansas and the claims giving
rise to this lawsuit relate to Kansas, even though many events
occurred in Nebraska.
The court finds that plaintiffs= choice of
forum in Kansas should not be disturbed unless the balance of the
remaining factors is strongly in favor of transfer.
B.
Accessibility of Witnesses/Documents
13
The Tenth Circuit has applied the second factor as follows:
The convenience of witnesses is the most important factor
in deciding a motion under ' 1404(a). To demonstrate
inconvenience, the movant must (1) identify the witnesses
and their locations; (2) indicate the quality or
materiality of their testimony; and (3) show that any such
witnesses were unwilling to come to trial, that deposition
testimony would be unsatisfactory, or that the use of
compulsory process would be necessary.
Id. at 1169(citations and internal quotations omitted).
Both parties have identified their witnesses in this case.
Both sides contend that their witnesses are important to the
litigation.
Both sides also belittle the importance of the
witnesses noted by the other side.
Both parties have also argued
that most of the relevant documents in the case are located in the
state where they believe the trial should occur.
The court notes the defendant has identified eight witnesses
that it employs that it has deemed as important witnesses.
All but
one of these witnesses purportedly resides in Nebraska.
The
defendant has also identified six other witnesses and they reside
in Nebraska and Colorado.
The defendant asserts that some of these
witnesses will be outside the subpoena power of this court.
Plaintiffs, on the other hand, have identified nine witnesses that
they believe are significant to this case and they reside in Kansas.
Plaintiffs contend that some of these witnesses will be outside the
subpoena power of the court in Nebraska if the case is transferred.
14
In evaluating this factor, the court believes that transfer of
this case would simply shift the inconvenience of the witnesses of
the opposing party.
The court notes that the defendant has control
over many of its witnesses and can order them to appear for trial
in Kansas.
In addition, the defendant has not shown that any of its
stated witnesses would not attend trial in this court or could not
satisfactorily provide their testimony by deposition.
Thus, the
court is not persuaded that the defendant has made the showing under
this factor required by the Tenth Circuit.
Accordingly, this factor
weighs against transfer in this case.
C.
Costs of Making the Necessary Proof
Both sides have argued that the cost of litigating this case
in the other forum would be greater.
However, neither side has
provided any evidence of the relative cost of litigating this case
in either Kansas or Nebraska.
Accordingly, the court cannot weigh
this factor in favor of transfer.
See id. at 1169.
D. Enforceability of Judgment
The defendant has not identified any potential problem with the
enforceability of a judgment obtained in this court.
Thus, this
factor does not weigh in favor of transfer.
E.
Relative Advantages and Obstacles to a Fair Trial
The defendant has not identified any way in which the likelihood
of a fair trial in this case relates to the particular forum.
15
Thus,
this factor does not weigh in favor of transfer.
F.
Difficulties from Congested Dockets
The defendant has not indicated that the dockets in Kansas are
more congested than those in Nebraska.
Thus, this factor also does
not favor transfer.
G.
Conflict of Laws and Questions of Local Law
The defendant has suggested that this case should be transferred
because Nebraska law applies to the res judicata issue.
The court
agrees that Nebraska law applies to the res judicata issue.
However,
that decision has been made by the court in this opinion.
The
defendant has not responded to plaintiffs= contention that Kansas law
applies to its claims because the loans were entered into in Kansas
and the misrepresentations were made in Kansas.
At this point, given
the failure of the defendant to counter the arguments of plaintiffs,
the court is inclined to find that Kansas law is applicable to the
claims made by the plaintiffs.
Accordingly, the court concludes
that this factor does not weigh in favor of transfer in this case.
H.
Other Considerations
The defendant has argued that this case should be transferred
to Nebraska because the Nebraska federal court has considered claims
related to the ones raised by the plaintiffs here.
The defendant
suggests that transfer would conserve judicial resources and avoid
inconsistent
results.
The
court
16
is
not
persuaded
that
the
defendant=s arguments are significant.
While this factor may favor
transfer, it is not of great importance since the Nebraska court
decided these claims in the early stages of its litigation.
I.
Summary
The court finds that the defendant has not shown that litigating
this case in Nebraska would be more convenient than litigating it
here.
The accessibility of witnesses presents some issues that
favor transfer, but overall, the court finds that transfer would
merely shift the inconvenience and deny plaintiffs their choice of
forum.
Accordingly, the court denies the motion for transfer of
venue.
IT IS THEREFORE ORDERED that defendant=s motion to dismiss or,
in the alternative, to transfer venue (Doc. # 7) be hereby denied.
IT IS FURTHER ORDERED that plaintiff=s motion for leave file
sur-reply (Doc. # 15) be hereby denied.
IT IS FURTHER ORDERED that plaintiff=s motion for hearing (Doc.
# 16) be hereby denied.
IT IS SO ORDERED.
Dated this 2nd day of July, 2013, at Topeka, Kansas.
s/Richard D. Rogers
United States District Judge
17
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