Williams v. Habul et al
ORDER adopting in part 16 Memorandum and Recommendations and granting 7 Motion to Dismiss. Complaint is dismissed with prejudice. Signed by District Judge Max O. Cogburn, Jr on 12/2/11. (com)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ROY F. WILLIAMS,
KENNY CHARLES E. HABUL
AND CORNELIUS ONE, LLC,
OF MAGISTRATE JUDGE
THIS MATTER is before the court on review of a Memorandum and
Recommendation [docket #16] by the Honorable David S. Cayer, United States
Magistrate Judge, recommending that the court grant defendants’ motion to dismiss
[docket #7] plaintiff’s complaint.
Plaintiff has filed an objection to the
recommendation [docket # 17].
FINDINGS AND CONCLUSIONS
The Federal Magistrate Act provides that “a district court shall make a de novo
determination of those portions of the report or specific proposed findings or
recommendations to which objection is made.” 28 U.S.C. § 636(b)(1); Camby v.
Davis, 718 F.2d 198, 200 (4 th Cir. 1983). However, “when objections to strictly legal
issues are raised and no factual issues are challenged, de novo review of the record
may be dispensed with.” Orpiano v. Johnson, 687 F.2d 44, 47 (4 th Cir. 1982).
Similarly, de novo review is not required by the statute “when a party makes general
or conclusory objections that do not direct the court to a specific error in the
magistrate judge’s proposed findings and recommendations.” Id. Moreover, the
statute does not on its face require any review at all of issues that are not the subject
of an objection. Thomas v. Arn, 474 U.S. 140, 149 (1985); Camby, 718 F.2d at 200.
Nonetheless, a district judge is responsible for the final determination and outcome
of the case.
The court begins its discussion with a recitation of background facts leading to
this lawsuit, as set forth below.
The State Court Lawsuit
In January 2011, plaintiff filed a First Amended Complaint in the North
Carolina Business Court in Mecklenburg County, North Carolina, bringing claims
against Kenny Charles E. Habul, Cornelius One, LLC, and other defendants alleging,
among other things, securities fraud after defendants allegedly sold plaintiff sham
securities. Plaintiff essentially alleged in the state court complaint that defendants
defrauded plaintiff by talking him into investing in an environmentally friendly, or
“green,” commercial office building. Plaintiff alleged in the state court action, among
other things, that defendants swindled him out of $300,000 and that defendant Kenny
Habul used plaintiff’s money for his own personal use.
On February 16, 2011, the parties entered into a Settlement Agreement and
Release, under which plaintiff agreed to dismiss the lawsuit after receiving a
settlement payment from Habul.
Specifically, Paragraph 5 of the Settlement
Agreement states, “Within 5 business days after Williams receives the full Payment,
Williams shall dismiss the Civil Action with prejudice by filing a Notice of Dismissal
with Prejudice.” Moreover, Paragraph 9 of the Settlement Agreement states that
plaintiff agreed to a release of all claims against all defendants, effectively
immediately upon his receipt of payment.
On March 18, 2011, after receiving the settlement payment from Habul,
plaintiff filed a motion to enforce certain provisions of the Settlement Agreement. On
April 4, 2011, defendants asked the Business Court to require plaintiff to comply with
the terms of the Settlement Agreement and dismiss the complaint with prejudice.
Defendants contended that plaintiff should have voluntarily dismissed the lawsuit by
March 11, 2011.
On June 15, 2011, the Business Court denied plaintiff’s motion to enforce the
settlement agreement and granted defendants’ cross-motion to enforce the Settlement
Agreement. The Business Court entered the following order:
The plain language of Paragraph 5 [of the settlement agreement]
unambiguously requires Plaintiff to file a Notice of Dismissal with
Prejudice within five business days after receiving full payment.
Plaintiff received full payment from Defendants in March 2011.
Plaintiff has represented to the Court his willingness to file the Notice of
Dismissal with Prejudice called for in Paragraph 5 of the Settlement
Agreement but for the Defendants’ alleged breach. The Court having
resolved this matter against Plaintiff and in favor of Defendants, Plaintiff
shall, therefore, file a Notice of Dismissal with Prejudice as provided in
the Settlement Agreement within five (5) business days of the entry of
(See Order, p.4, Williams v. Habul, 11 CVS 1050 (Mecklenburg Cnty. Sup. Ct. June
15, 2011) (omitting citations)). Plaintiff refused to dismiss the case and on June 24,
2011, he appealed the June 15, 2011, Order to the North Carolina Court of Appeals,
where the matter is pending. (See Williams v. Habul, No. 11-1126, N.C. Ct. App.)
Plaintiff’s Lawsuit in This Court
On August 1, 2011, filed this lawsuit.
Plaintiff’s complaint alleges that
defendants breached the Settlement Agreement in the state court lawsuit, and he has
reasserted the same claims as in the state court against defendants Habul and
Cornelius One, LLC. That is, plaintiff brings the following three claims in this
lawsuit: (1) securities fraud under Section 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. § 78(b); (2) securities fraud under the North Carolina Securities Act,
N.C. G EN. S TAT. § 78A-2(11); and (3) “Derivative Recovery for Cornelius One,
On August 24, 2011, defendants filed a motion to dismiss plaintiff’s
complaint. On October 21, 2011, Judge Cayer entered an M&R, recommending that
this court dismiss plaintiff’s complaint with prejudice. In the M&R, Judge Cayer
found that, by signing the Settlement Agreement, plaintiff released the claims he
asserts in this lawsuit and, therefore, his claims should be dismissed on the merits.
(M&R, p. 6.)
On November 7, 2011, plaintiff filed an objection to the magistrate judge’s
M&R. Plaintiff objects to the magistrate judge’s M&R on the following two grounds:
(1) plaintiff contends that the M&R disregards explicit language in the settlement
language declaring all of the covenants to be mutually dependent and misapprehends
the purpose of the language deferring effective of the release; and (2) plaintiff
contends that the M&R overlooks the fact that at least one of defendants’ breaches
existed before the payment condition was satisfied, giving rise to an additional,
constructive condition upon the release that was not met.
The court agrees with the magistrate judge that this matter should be dismissed.
The court differs with the magistrate judge, however, as to the grounds for dismissal.
As noted, the magistrate judge found that the complaint should be dismissed on the
merits because, by entering into the Settlement Agreement, plaintiff released all
Plaintiff does not bring a claim for breach of the Settlement Agreement itself.
claims against defendants. This court has no doubt that the magistrate judge correctly
interpreted the Settlement Agreement, and the court appreciates the thoughtful and
sound analysis of the magistrate judge. The court finds that this matter must be
dismissed, however, for lack of jurisdiction as barred by the principle of res judicata
and/or the abstention doctrine under Colorado River Water Conservation District v.
United States, 424 U.S. 800 (1976).
First, the doctrine of res judicata, or claim preclusion, bars plaintiff from
bringing his claims here. Under 28 U.S.C. § 1738, known as the Full Faith and Credit
Statute, federal courts must give the same preclusive effect to a state court judgment
as another court of that state would give. 28 U.S.C. § 1738. Under North Carolina
law “a final judgment on the merits prevents relitigation of issues actually litigated
and necessary to the outcome of the prior action in a later suit involving a different
cause of action between the parties or their privies.” Thomas M. McInnis & Assocs.,
Inc. v. Hall, 318 N.C. 421, 428, 349 S.E.2d 552, 557 (1986). Under claim preclusion,
parties are barred “from retrying fully litigated issues that were decided in any prior
determination, even where the claims asserted are not the same.” McCallum v. N.C.
Coop. Extension Serv., 142 N.C. App. 48, 51, 542 S.E.2d 227, 231 (2001). A party
may not avoid the application of claim preclusion merely by “shifting legal theories
or asserting a new or different ground for relief.” Nw. Fin. Group v. County of
Gaston, 110 N.C. App. 531, 538, 430 S.E.2d 689, 694 (1993).
Here, plaintiff would clearly be barred from bringing a new lawsuit in the North
Carolina state courts after a North Carolina state court has already found that
plaintiff’s claims must be dismissed as a result of plaintiff’s release of those claims
under the Settlement Agreement. Under the Full Faith and Credit Statute, plaintiff
clearly cannot do in this court what he could not do in state court. For this reason
alone, plaintiff’s complaint must be dismissed as barred by res judicata.
Furthermore, to the extent that plaintiff has appealed the June 15, 2011, Order
of the state court, the state court proceedings are still ongoing. Thus, it appears that
this case is rife for abstention under the principles announced in Colorado River
Water Conservation District v. United States, 424 U.S. 800 (1976). In Colorado
River, the Supreme Court held that where there are pending parallel proceedings in
federal and state court involving the same parties and issues, the federal district court
may dismiss the federal action in favor of the state-court litigation.2 Id. Here, the
issues in this lawsuit overlap with the issues in plaintiff’s state court appeal of the
Business Court’s Order. That is, plaintiff purports in this lawsuit that he has the right
In determining whether abstention is appropriate under Colorado River, the district court
considers the following six factors: (1) whether either court has assumed jurisdiction over a res; (2)
the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the
order in which the forums obtained jurisdiction; (5) whether federal law or state law controls; and
(6) whether the state forum will adequately protect the interests of the parties. Chase Brexton
Health Servs., Inc. v. Md., 411 F.3d 457, 463-64 (4th Cir. 2005).
to reassert, and he does reassert, the same securities fraud claims against defendants
here that he asserted in the state court action. Furthermore, in the ongoing state court
action, plaintiff has appealed the Business Court’s Order indicating that plaintiff was
required to dismiss his claims in that action, including the securities fraud claims,
because as a matter of law he released his right to bring those claims when he signed
the Settlement Agreement. In sum, there are clearly overlapping issues in the state
and federal actions, with the potential for conflicting rulings. Therefore, in addition
to finding that this action is barred by res judicata, the court also finds that abstention
is proper under Colorado River.
Recommendation [docket ##16] is ADOPTED in part. That is, the court agrees with
the magistrate judge that plaintiff’s complaint should be dismissed with prejudice.
The court does not adopt, however, the magistrate’s grounds for recommending
dismissal of the action. That is, the court is barred from reaching the merits of
plaintiff’s action in this case because plaintiff’s action is barred by res judicata and
abstention is proper under Colorado River.
For the reasons stated herein, it is HEREBY ORDERED that defendants’
motion to dismiss [docket #7] is GRANTED and this action is DISMISSED with
Signed: December 2, 2011
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