Vanguard Stimulation Services, LLC v. Trican Well Service, L.P. et al
Filing
20
MEMORANDUM OPINION AND ORDER denying 10 MOTION to Dismiss 1 Complaint Pursuant to Federal Rule of Civil Procedure 12(B)(6). (Signed by Judge Sim Lake) Parties notified. (aboyd)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
VANGUARD STIMULATION SERVICES,
LLC,
§
§
§
§
Plaintiff,
§
§
§
§
§
§
§
v.
TRICAN WELL SERVICE, L.P. and
WELLS FARGO BANK, N.A.,
Defendants.
CIVIL ACTION NO. H-13-0507
MEMORANDUM OPINION AND ORDER
This
declaratory judgment
action arises
out
of
a
dispute
between Vanguard Stimulation Services, LLC ("Vanguard") and Trican
Well
Service,
funds.
L. P.
("Trican")
over the
distribution of
Pending before the court is Trican's Motion to Dismiss
Pursuant to Federal Rule of Civil Procedure 12 (b) (6)
Motion
escrow
to
Dismiss")
(Docket
Entry No.
10)
For
("Trican' s
the
reasons
and a buyer
(Trican)
explained below, the motion will be denied.
I .
A.
Background
The Parties' Contract
In March of 2010 a seller
(Vanguard)
executed a written contract for the sale of certain assets.l
The
lAsset Purchase Agreement, Ex. A to Plaintiff's Original
Complaint and Jury Demand ("2013 Complaint"), Docket Entry No. I-I,
p. 1. Other entities were involved in the transaction, but those
entities are neither relevant to this dispute nor parties to this
lawsuit.
See id.
contract's price and payment
terms are governed by a
separate
agreement (the "Escrow Agreement") whereby Trican agreed to deposit
a sum of money in an account designated by Wells Fargo Bank, N.A.
("Wells Fargo"),
Fargo
retained
the escrow agent. 2
the
authority
to
As the escrow agent,
distribute
the
Wells
escrow
funds,
subject to the terms and conditions of the Escrow Agreement. 3
The
Escrow Agreement provided for Wells Fargo to make three separate
distributions. 4
Pursuant to the Escrow Agreement,
Trican may make a claim
against the escrow funds for indemnification by delivering to Wells
Fargo and Vanguard "a written notice (an 'Indemnification Notice')
setting forth the nature, dollar amount and basis for such claim in
reasonable detail
the
(an 'Indemnification Claim') and whether or not
Indemnification Claim is
a
Tax-Related Claim.,,5
The
same
section of the Escrow Agreement provides that if Trican does so,
and Vanguard does not object, Wells Fargo shall transfer to Trican
an
amount
of
the
escrow
funds
equal
to
the
amount
of
the
Indemnification Claim. 6
2Escrow Agreement,
No. 1-2, art. 1, § 1.1.
Id .
§
1. 4 (e),
SId.
§
1.4(b)
4
Ex.
B
to
2013
( f), and (g) .
(emphasis removed)
6Id.
-2-
Complaint,
Docket
Entry
The Escrow Agreement also requires Vanguard to "file with the
Texas Comptroller pursuant to Section 111.020 of the Texas Tax Code
an application . . . for a 'Certificate of No Tax Due' with respect
to
[Vanguard]
and its operations."7
Wells Fargo is obligated to
release $2,211,921 from the escrow funds to Vanguard if Vanguard
timely files the application for, and obtains, the Certificate of
No Tax Due. 8
when
A "Release Event" occurs under the Escrow Agreement
Vanguard
provides
reasonably
satisfactory
successor liability taxes have been resolved. 9
evidence
that
If Trican does not
object to the occurrence of a Release Event, the Escrow Agreement
provides that Wells Fargo shall transfer to Vanguard an amount
equal to the amount reserved in the escrow funds for such successor
liability taxes
B.
.10
The Lawsuits
Disputes over the distribution of the escrow funds have given
rise to two lawsuits.
In 2011, prior to the second distribution,
Vanguard objected to Trican's purported Indemnification Claim.ll
7Id.
§
1. 3.
BId.
§
1.4(j)
9Id.
§
1.4(1)
lOrd.
IlPlaintiff's Original Complaint and Jury Demand,
Cause
No. H-11-3973 ("2011 Complaint"), Ex. A to Trican's Motion to
Dismiss, Docket Entry No. 10-1, ~~ 12-14.
-3-
Vanguard filed an action against Trican and Wells Fargo in this
court
on
November
11,
2011
(the
"2011
Action U
seeking
),
a
declaratory judgment:
I.
[That] Trican does not have a valid Indemnification
Claim (including a valid Tax-Related Claim) against the
$1,465,287.01 in Escrow Funds that were due to be
released to Vanguard on the Second Distribution Datei
11.
That Trican did not provide a valid Indemnification
Notice in accordance with the terms of the Escrow
Agreement; and
iii. That [Wells Fargo] shall release the $1,465,287.01
in Escrow Funds to Vanguard upon delivery of a final
order in accordance wi th the above. 12
The parties subsequently reached a settlement, and the 2011 Action
was dismissed with prejudice on January 24, 2012. 13
Vanguard filed the pending action on February 25, 2013
"2013 Action
U
),
(the
alleging that under the Escrow Agreement it is
enti tIed to the third distribution of escrow funds.
14
Vanguard
alleges that it has complied with the provisions in the Escrow
Agreement concerning the application for a Certificate of No Tax
Due. 1S
Vanguard further alleges that the Texas Comptroller issued
a Certificate for "all permitted taxes
§
U
and that under TEX. TAX CODE
111.020 the Texas Comptroller's failure to issue a Certificate
for sales taxes means that Trican is released from the obligation
12
Id .
~
2 0 (b) .
13Dismissal Order, Cause No. H-11-3973 ("2011 Dismissal
Ex. B to Trican's Motion to Dismiss, Docket Entry No. 10-2.
14
2013 Complaint, Docket Entry No.1.
-4 -
U
),
to pay sales taxes. 16
Event occurred. 17
Vanguard alleges that therefore a Release
Vanguard requests a declaratory judgment:
I.
[That a] Release Event has occurred within the
meaning of Section 1.4(1) of the Escrow Agreement; and
11.
That [Wells Fargo] shall release the full Remaining
Escrow Amount, consisting of the sum of $2,211,921 plus
all accrued interest, to Vanguard upon delivery of a
final order in accordance with the above. ls
Vanguard also seeks monetary damages. 19
Trican filed a motion to dismiss the 2013 Action on May 6, 2013,
arguing that Vanguard's claims are barred by the doctrine of res
judicata. 2o
In a response filed on May 28,2013, Vanguard argues that
the motion should be denied because res judicata does not apply to
declaratory relief actions. 21
here
is entirely different
Vanguard also argues that the dispute
from the dispute underlying the 2011
Action and therefore that the elements of res judicata have not been
satisfied. 22
Trican replied on June 7, 2013. 23
16Id.
2°Trican's Motion to Dismiss, Docket Entry No. 10,
~
4.
21Vanguard's Opposition to Trican's Motion to Dismiss Pursuant
Federal
Rule
of
civil
to
Procedure
12 (b) (6)
( "Vanguard's
Opposition"), Docket Entry No. 11, pp. 6-9.
22Id. at 5-6.
23Trican's Reply in Support of Its Motion to Dismiss Pursuant
to Federal Rule of Civil Procedure 12 (b) (6) ("Trican' s Reply"),
Docket Entry No. 14.
-5-
II.
A.
Motion to Dismiss Standard
A
motion
to
dismiss
Procedure 12 (b) (6)
may
Applicable Law
be
granted
pursuant
to
Federal
Rule
of
Civil
for failure to state a claim for which relief
is
"appropriate
when
a
defendant
attacks
the
complaint because it fails to state a legally cognizable claim."
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001).
When
considering a motion to dismiss the court must accept the factual
allegations
of
the
complaint
as
true
inferences in the plaintiff's favor.
and draw
all
reasonable
Martin K. Eby Constr. Co. v.
Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004).
The
court's review of the record is "limited to the complaint,
any
documents attached to the complaint, and any documents attached to
the motion to dismiss that are central to the claim and referenced
by the complaint."
Lone Star Fund V (U.S.), L.P. v. Barclays Bank
PLC, 594 F.3d 383, 387 (5th Cir. 2010).
The court may also refer
to matters of public record in considering a motion to dismiss.
Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994).
B.
Res Judicata
The doctrine of res judicata bars the litigation of claims
that have been litigated or should have been raised in an earlier
suit.
Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571
(5th Cir. 2005).
The res judicata effect of a prior federal court
judgment is determined by federal
-6-
law.
Robinson v.
Nat'l Cash
Register Co., 808 F.2d 1119, 1124 (5th Cir. 1987).
Four elements
must be satisfied for res judicata to bar an action:
parties
in
identical;
the
(2)
prior
action
and
the
pending
action
(1)
the
must
be
the judgment in the prior action must have been
rendered by a court of competent jurisdiction; (3) the prior action
must
have
concluded with a
final
judgment on
the
merits;
and
(4) the same claim or cause of action must be involved in both the
prior action and the pending action.
484 F.3d 321, 326 (5th Cir. 2007).
United States v. Davenport,
The party asserting that the
doctrine of res judicata bars an action bears the burden of proof
on these elements.
Grynberg v. BP P.L.C., 855 F. Supp. 2d 625, 649
(8.D. Tex. 2012).
III.
A.
Analysis
Applicability of Res Judicata
Before reaching the question of whether the doctrine of res
judicata bars the 2013 Action, the court must address the threshold
question of whether the doctrine may apply in cases where the prior
action sought declaratory relief.
Vanguard urges the court to hold
that it may not, arguing that as a matter of law a dismissal with
prejudice of a declaratory judgment action may not have a
res
judicata effect on a subsequent suit between the same parties. 24
The court does not agree.
In the Fifth Circuit the doctrine of res
judicata is not
limited only to actions seeking damages or coercive relief.
24Vanguard's Opposition, Docket Entry No. 11, pp. 6-9.
-7-
Courts
use the unmodified term "action" to describe the prior and pending
suits when setting out the elements of res judicata.
Davenport,
484 F.3d at 326; Singh,
L.L.C.
United States,
v.
in
Moreover,
application
365
of
res
declaratory relief.
F.3d 385,
395
Fifth
Circuit
the
Petro-Hunt
428 F.3d at 571;
judicata
where
a
See, e.g.,
Petro-Hunt,
(5th Cir.
prior
2004).
considered
action
the
involved
Although the court in Petro-Hunt concluded
that the prior action did not involve the same claim or cause of
action,
and
explicitly
applied
conclusion.
706
therefore
had
the
no
elements
preclusive
to
the
effect,
facts
to
the
court
reach
that
Id. at 395-97; see also Hatton v. Grigar, 258 F. App'x
(5th Cir. 2007)
(affirming district court's dismissal on res
judicata grounds where prior action involved declaratory judgment
action) .
Accordingly,
prior judgment
in a
as long as the elements are satisfied,
suit
a
seeking declaratory relief may bar a
subsequent suit under the doctrine of res judicata.
The court
therefore declines to hold that as a matter of law res judicata may
not apply in this case on the ground that the 2011 Action sought
declaratory relief. 25
25The court also rejects any argument that as a matter of law
res judicata may not properly serve as the basis for a motion to
dismiss.
See Larter & Sons v. Dinkier Hotels Co., 199 F.2d 854,
855 (5th Cir. 1952) (holding that a court may rely on the doctrine
of res judicata to dismiss an action pursuant to Rule 12(b) (6));
Hatton, 258 F. App'x 706 (affirming district court's Rule 12(b) (6)
dismissal on res judicata grounds) .
-8-
--_._.--_.---_.
B.
Satisfaction of the Doctrine
The first three elements of res judicata are not in dispute in
this case:
the parties in the 2011 Action and the 2013 Action are
identicali
the judgment in the 2011 Action was rendered by this
court, a court of competent jurisdictioni and the court's dismissal
of the case with prejudice was a final judgment on the merits.
Oreck Direct, LLC v. Dyson, Inc.
1
560 F.3d 398
1
See
401 (5th Cir. 2009)
("[T]he district court/s dismissal of the case with prejudice was
a
final
judgment
on
the
merits.lf) i
Pilots Ass'n, 987 F.2d 278
1
284 n.8
which is designated 'with prejudice
the merits
for purposes of res
marks omitted))
Fernandez-Montes
(5th Cir. 1993)
v.
Allied
("A dismissal
is normally an adjudication on
l
judicata.
If
(internal quotation
At issue is whether the fourth element has been
satisfied.
The Fifth Circuit has adopted the
"transactional test lf
to
determine whether two suits involve the same claim or cause of
action.
Petro-Hunt, 365 F.3d at 395.
Under the transactional test
"the preclusive effect of a prior judgment extends to all rights
the original plaintiff had with respect to all or any part of the
transaction, or series of connected transactions, out of which the
original
action arose.
If
quotation marks omitted).
actions
under
Id.
at
1 If
Id.
(internal
alterations and
The crucial issue is "'whether the two
consideration are
opera t i ve facts.
396
based on
the
same
(quoting In re Southmark Corp.
-9-
nucleus
1
of
163 F. 3d
925,
934
(5th Cir. 1999)); see also In re Ark-La-Tex Timber Co.,
482 F.3d 319, 330 (5th Cir. 2007)
("[W]hether the same nucleus of
operative facts is present revolves around the factual predicate of
(internal quotation marks omitted)).
the claims asserted."
If a
party can only win the suit by convincing the court that the prior
judgment was in error, the second suit is barred.
Singh, 428 F.3d
at 571.
Trican bears the burden of proving that the 2013 Action and
the 2011 Action involve the same nucleus of operative facts.
Grynberg,
855 F. Supp. 2d at 649; Petro-Hunt,
See
365 F.3d at 396.
Trican argues that Vanguard's claims in both actions arise from the
same contracts and involve disputes over the distribution of money
from
the
escrow funds
to Vanguard
"as
a
result
of
Vanguard's
failure to pay and/or its failure to obtain confirmation of payment
of Taxes."26
Trican further argues that prior to the 2011 Action
it requested from Vanguard a "tax clearance certificate evidencing
no tax due."27
Trican therefore contends that because Vanguard's
claims in the 2013 action were or should have been raised in the
2011
action,
Vanguard's
Complaint
the
2013
Opposition
that
the
action
points
Texas
is
to
barred
the
by
res
allegation
Comptroller's
failure
judicata. 28
in
to
26Trican's Motion to Dismiss, Docket Entry No. 10,
27Id.
28Id.
-10-
the
2013
issue
~
17.
a
Certificate of No Tax Due resulted in a Release Event. 29
Vanguard
therefore contends that the 2013 Action turns on a distinct set of
operative facts. 3o
The
(3)
facts
operative
included:
(2 )
The court agrees.
the
(1)
the
2011
Action
the validity of Trican's Indemnification Claim;
validity
Vanguard's
in
alleged
of
Trican's
entitlement
to
Notice;
and
distribution. 31
By
Indemnification
the
second
contrast the operative facts alleged in the 2013 Action include:
(1)
Vanguard's
compliance
with
the
provisions
of
the
Escrow
Agreement concerning the application for a Certificate of No Tax
Due;
(2)
the
failure
of
the
Texas
Comptroller
to
issue
the
Certificate for sales taxes; (3) the occurrence of a Release Event;
and
(4)
Vanguard's entitlement to the third distribution. 32
The
similarities between the actions -- the underlying Escrow Agreement
and
the
disputes
determinative.
concerning
the
payment
of
taxes
are
not
See Petro-Hunt, 365 F.3d at 396 (" [O]bservations of
factual similarity, although potentially relevant for purposes of
collateral estoppel, are not relevant to res Judicata.
judicata is concerned with the sameness of operative facts.")
[R]es
For
29Vanguard's Opposition, Docket Entry No. 11, p. 5.
30Id.
31 2011 Complaint, Ex. A to Trican's Motion to Dismiss, Docket
Entry No. 10-1, ~ 20. The Escrow Agreement and the 2011 Complaint
are properly before the court on this motion to dismiss.
See
Connick, 15 F.3d at 1343 n.6; Lone Star, 594 F.3d at 387.
32 2013 Complaint, Docket Entry No. 1,
-11-
~~
20, 26.
purposes of res judicata the facts that reveal similarities between
the two actions are not the operative facts as alleged by Vanguard.
The factual predicates of Vanguard's two actions do not rest on the
existence of the Escrow Agreement and the general allocation of tax
liabilitYr but on the performance of separate and distinct duties
enumerated in the Escrow Agreement.
Further distinguishing the two
actions is the fact that the correctness of the prior judgment has
no effect on the outcome of this case.
Trican's
argument
that
it
See Singh r 428 F.3d at 571.
requested
a
"tax
clearance
certificate" prior to the 2011 Action -- and that therefore the
claims in the 2013 Action should have been raised in the 2011
Action
does not
persuade
the
court.
The
fact
requested the Certificate is not an operative fact
Action.
that
Trican
in the 2013
The court also rejects Tricanrs argument that res judicata
bars the 2013 Action because Vanguard had obtained the pertinent
Certificate of No Tax Due prior to filing the 2011 Action. 33
Even
if that is truer Vanguard would not have been required to raise the
claim concerning the Certificate in 2011.
In this case the dispute
over the Certificate is relevant to the third distribution r not the
second.
The
nature
of
the
parties'
agreement
provided
for
three
separate payments r all of which were subject to certain terms and
33Trican r s ReplYr Docket Entry No. 14 r
-12-
~
4.
conditions.
Vanguard's two actions for declaratory relief invoke
distinct terms and conditions of the Escrow Agreement,
and are
based on two different distributions that were to occur separately.
under the facts alleged in the 2013 Complaint, which the court must
accept as true, Vanguard's rights at the time of the 2011 Action
did not extend to the dispute that underlies the 2013 Action.
Petro-Hunt, 365 F.3d at 396.
See
Taken to its logical end, Trican's
reasoning would permit a party to a contract such as the Escrow
Agreement to file a declaratory judgment action with respect to the
first distribution, dismiss the suit, and thereby immunize itself
from
suit
if
distribution.
ends.
a
dispute
should
arise
concerning
a
later
The doctrine of res judicata is not a means to such
Having considered the facts alleged on the face of the 2013
Complaint,
in conjunction with the Escrow Agreement and the 2011
Complaint, the court concludes that the two actions are not based
on the same nucleus of operative facts.
Trican has therefore
failed to carry its burden to show that the 2011 Action and the
2013 Action involve the same claim or cause of action.
IV.
Conclusion and Order
Accepting the factual allegations of the 2013 Complaint as
true and drawing all reasonable inferences in Vanguard's favor, see
Eby Construction,
2013
Action
is
369 F.3d at 467,
not
barred by
res
-13-
the court concludes that the
judicata.
Vanguard's
2013
Complaint is therefore not subject to dismissal on res judicata
grounds.
Accordingly,
Trican's Motion to Dismiss
(Docket Entry
No. 10) is DENIED.
SIGNED at Houston, Texas, on this the 27th day of June 2013.
UNITED STATES DISTRICT JUDGE
-14-
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