Opinion
Civil Action No. 3:00-CV-1292-D
June 28, 2001
MEMORANDUM OPINION AND ORDER
Plaintiffs seek declaratory relief under state and federal law, apply for a writ of execution, and, alternatively, apply for turnover relief to collect from defendants unpaid restitution imposed by a criminal judgment of this court in United States v. Raneri, Criminal No. 3:94-CR-428-D. Defendants move for summary judgment, contending that plaintiffs' declaratory judgment action is barred by res judicata in view of the court's judgment in Brupbacher v. Raneri, 2000 WL 665560 (N.D. Tex. May 17, 2000) (" Brupbacher I"), an earlier suit that plaintiffs brought against them, that their execution application is time-barred, and that turnover relief is procedurally unavailable. The court determines that plaintiffs' declaratory judgment action is barred by res judicata, raises sua sponte whether their application for a writ of execution upon the house at issue is barred by res judicata, and concludes that the presence of unresolved substantive issues preclude the court from entering a turnover order.
The Westlaw report of Brupbacher I states in error that it was decided March 17, 2000; it was filed May 17, 2000.
Defendants also seek summary judgment as to plaintiffs* declaratory judgment action based on collateral estoppel and limitations. The court need not address these grounds of their motion.
I
In Brupbacher I the court held that defendant Peter F. Raneri ("Raneri") and others ("the Criminal Defendants") had participated in a scheme to defraud tax authorities of diesel fuel excise taxes using a company, Hebco, to purchase diesel fuel from Fina Oil and Chemical Company ("Fina"). Id. at *1. Fina required that Hebco secure its fuel purchases with letters of credit ("LCs"). Plaintiffs Ross Brupbacher ("Brupbacher"), Anthony Moroux ("Moroux"), and Peter F. Nicolosi ("Nicolosi") supplied the required LCs. Id. In late 1989 or early 1990, Hebco failed to pay Fina for fuel that it purchased. Fina called the LCs, causing plaintiffs to incur monetary losses. Id.Hebco wired to the Cayman Islands the funds that it owed Fina. Shortly thereafter, the funds were wired to Europe, where the Criminal Defendants had traveled for the purpose of engaging in additional criminal conduct. In Europe, one of the Criminal Defendants and Raneri arranged for substantial sums to be wired through a straw man account, set up in the name of the uncle of Raneri's wife, to a title company in Dallas. Raneri's wife, codefendant Gabrielle Raneri ("Mrs. Raneri"), used this money to construct a $391,632.56 residence at 400 Creekside Court, Irving, Dallas County, Texas (the "House"). The House is not security for any debt, and there are no deeds of trust filed of record to secure any Hen on the House. Id.
In April 1990 Raneri and Mrs. Raneri entered into a Postnuptial Agreement that provided that the House was Mrs. Raneri's separate property. In May 1990 Mrs. Raneri signed the relevant contracts to initiate construction of the House, and it was completed in late 1990. Plaintiffs allege that she obtained the House in a fraudulent transaction, using the proceeds of criminal activities. Id.
Raneri pleaded guilty for his role in the criminal scheme. As part of his sentence, the court ordered that Raneri make restitution to Brupbacher in the amount of $191,500, Nicolosi restitution in the amount of $25,000, and the Moroux Estate restitution in the amount of $87,500. After Raneri had made only modest monthly payments and still owed considerable unpaid restitution, Brupbacher, Julia D. Moroux, as trustee of the ADM Qualified Trust (the "Trust"), successor-in-interest to the Estate of Anthony Moroux, and Nicolosi filed suit in Brupbacher I. They sought an order compelling Raneri to turn over the House pursuant to Rule 69 and § 31.002 and, alternatively, imposition of a constructive trust. They later added Mrs. Raneri as a defendant because title to the House is recorded in her name. Id. at *2.
Following a bench trial, the court dismissed plaintiffs' application for a turnover order under Tex. Civ. Prac. Rem. Code Ann. § 31.002 (Vernon Supp. 2001) on the basis that the statute is purely procedural in nature and does not allow substantive determinations as to the rights of the parties. Brupbacher I, 2000 WL 665560, at *2. The court held that to establish their right to relief under the turnover statute, plaintiffs were obligated to prove that Raneri had an ownership interest in the House. It concluded that it must also resolve whether the House was acquired with the proceeds of criminal activities and therefore not exempt from execution under Texas homestead law. Id. The court also held that these were the substantive issues that could not be decided in the context of a turnover action. Id.
The court dismissed plaintiffs' constructive trust claim with prejudice after it determined that the claim was barred by limitations. Id. at *4. Plaintiffs did not file this action until May 18, 1998. They do not challenge the proposition that the inception of the trust occurred before May 18, 1994 — four years before they filed suit — and the court found that it did. Instead, they attempted at trial to assert that the limitations period was tolled under the discovery rule, or under the doctrine of fraudulent concealment, because Brupbacher did not learn of the existence of the House until the trial of Raneri's codefendant in approximately 1997, Id. Plaintiffs did not include these avoidance theories in the pretrial order ("PTO"), however, and the court held that they could not rely on them to avoid defendants' limitations defense. Id.
The court held:
Plaintiffs did not include these avoidance theories in the PTO. When plaintiffs attempted to introduce evidence at trial to toll the limitations period on these grounds, defendants timely objected inter alia on this basis. The court carried the objection and now sustains it. Plaintiffs did not include these matters in the PTO and defendants had no reason to prepare to refute them at trial. Plaintiffs' failure to include them in the PTO precludes their relying on them to avoid the limitations defense.Id.
Following entry of judgment dismissing their turnover action and dismissing with prejudice their constructive trust claim as time-barred, plaintiffs filed the present suit. In count one, they seek a declaratory judgment under federal and state declaratory judgment statutes, § 31.002, and Fed.R.Civ.P. 69; in count two they apply for a writ to execute upon the House through foreclosure of their judgment Hen; and in count three they apply in the alternative for turnover relief Defendants move for summary judgment.
II
In their declaratory judgment claim, plaintiffs ask the court to declare that (1) the House was purchased with illegally-obtained funds and cannot be designated as a homestead under Texas state law; (2) plaintiffs are preexisting creditors under Tex. Fam. Code Ann. § 4.106(a) (Vernon 1998); (3) the Raneris executed the Postnuptial Agreement in an attempt to defraud Raneri's preexisting creditors and that the agreement is therefore void and of no effect as to plaintiffs' claims; and (4) the House is Raneri's nonexempt separate or community property that is subject to execution by plaintiffs under the court's judgment.
A
The doctrine of res judicata, or claim preclusion, bars litigation of any issue connected with a cause of action or defense that, in the use of diligence, a party might have tried or actually did try. See Ellis v. Amex Life Ins. Co., 211 F.3d 935, 938 n. 1 (5th Cir. 2000). Neither side disputes that res judicata has four elements: (1) the parties must be the same in both cases; (2) the prior judgment must have been rendered by a court of competent jurisdiction; (3) there must be a final judgment on the merits; and (4) the same cause of action must be involved in both cases. See Travelers Ins. Co. v. St. Jude Hosp., 37 F.3d 193, 195 (5th Cir. 1994) (citing Nilsen v. City of Moss Point, Miss., 701 F.2d 556, 559 (5th Cir. 1983) (en banc)). There is no dispute in the briefing that two of the elements — same parties and prior judgment rendered by court of competent jurisdiction — are met. The court must decide whether the other two components are satisfied.
B
The court turns first to whether defendants have established that Brupbacher I is a final judgment on the merits. Plaintiffs argue that it is not because in Brupbacher I they sought turnover relief and, rather than resolve that claim on the merits, the court expressly held that it was a procedural device that did not provide for a determination of substantive rights. They also maintain that this court expressly reserved their right to bring another enforcement action.
Brupbacher I is a final judgment on the merits because the court dismissed plaintiffs' constructive trust claim as time-barred. See Ellis, 211 F.3d at 937 (holding that dismissal based on limitations is decision on merits). Nor did the court expressly reserve to plaintiffs the right to bring a lawsuit establishing that the House is property that is subject to execution or turnover relief. The passage in Brupbacher I on which plaintiffs apparently rely states:
Plaintiffs cite this part of Brupbacher I earlier in their brief. See Ps. Br. at 1-2. They refer to it in contending that the court expressly limited the preclusive effect of its prior judgment. See id. at 13 n. 31 (citing id. at 2 n. 1); see also id. at 8-9 9 n. 17.
Although the court is dismissing plaintiffs' turnover application, it does not suggest that plaintiffs will not ultimately prevail in a separate action on their claim that the House is subject to execution, or on a future turnover application. The present application simply presents unresolved substantive questions that must be separately adjudicated before a turnover application can be entertained.Brupbacher I, 2000 WL 665560, at *4 (footnote omitted). The court did not expressly reserve plaintiffs' right to maintain a second action. In the part of its opinion that addresses plaintiffs' turnover application, it merely noted the absence of any suggestion that plaintiffs could not prevail in a separate action contending that the House is subject to execution. The court had no reason to consider whether such a lawsuit — in whatever forum, under whatever theories, and against whomever brought — would be subject to any particular defense, including an affirmative defense such as res judicata that is waived if not raised. It did not by its opinion excuse plaintiffs from the preclusive effects of any defense. Concerning a future turnover application, the passage clearly noted that "unresolved substantive questions . . . must be separately adjudicated before a turnover application can be entertained." Id.
See United States v. Shanbaum, 10 F.3d 305, 311 (5th Cir. 1994) (holding theory is affirmative defense that can be waived).
C
The court now considers the fourth element: whether the same cause of action is involved in both cases.1
In determining whether this component is satisfied, the court utilizes the transactional approach of the Restatement (Second) of Judgments. Ellis, 211 F.3d at 938; In re Intelogic Trace, Inc., 200 F.3d 382, 386 n. 3 (5th Cir. 2000). The transactional approach provides:
(1) When a valid and final judgment rendered in an action extinguishes the plaintiff's claim pursuant to the rules of merger or bar . . . the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.
(2) What factual grouping constitutes a "transaction", and what groupings constitute a "series," are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.
Restatement (Second) of Judgments § 24 (1982). The critical issue is not the relief requested or the theory asserted. The question is instead
whether [the] plaintiff bases the two actions on the same nucleus of operative facts. The rule is that res judicata "bars all claims that were or could have been advanced in support of the cause of action on the occasion of its former adjudication, . . . not merely those that were adjudicated."In re Howe, 913 F.2d 1138, 1144 (5th Cir. 1990) (quoting Nilsen, 701 F.2d at 560). "If the factual scenario of the two actions parallel, the same cause of action is involved in both. The substantive theories advanced, forms of relief requested, types of rights asserted, and variations in evidence needed do not inform this inquiry." Agrielectric Power Partners, Ltd. v. Gen. Elec. Co., 20 F.3d 663, 665 (5th Cir. 1994).
2
Defendants maintain that plaintiffs' declaratory judgment action is barred by res judicata because plaintiffs could have brought the claim in Brupbacher I and because the cause of action arises out of the same nucleus of operative facts as the constructive trust claim asserted in Brupbacher I. Plaintiffs argue that the two cases do not arise out of the same nucleus of operative facts. They posit that their constructive trust cause of action was supported by proof that Raneri used the proceeds of his criminal activity to purchase the House. Plaintiffs assert that their declaratory judgment action is based on the Postnuptial Agreement. They reason that the constructive trust claim did not require proof that the Postnuptial Agreement constituted fraud on creditors and their declaratory judgment action does not require proof that Raneri purchased the House with criminal proceeds. The court disagrees.
The parties agree that the first two elements of a res judicata defense — same parties and prior judgment rendered by a court of competent jurisdiction — are not in dispute. The court therefore focuses attention on the remaining elements of the defense.
In Brupbacher I plaintiffs sought a constructive trust on the ground that they should have an equitable lien against the House because the funds used to purchase it were the fruits of criminal activity that arose from a fraud against them. See Brupbacher I Pretrial Order at 2.1.4(b) (quoted in Ds. MSJ at 4). They listed as contested issues of law whether the House is exempt homestead property, whether they have an equitable lien on the funds used to purchase the House, and whether any equitable lien on the funds used to purchase the House should result in a constructive trust on the House for their benefit. See id. at 2.1.5. Plaintiffs asserted in Brupbacher I that Mrs. Raneri obtained the House in a fraudulent transaction, using the proceeds of criminal activities. Brupbacher I, 2000 WL 665560, at *1. In the present declaratory judgment action, plaintiffs also ask the court to declare that the House was purchased with illegally obtained funds. See Am. Compl. at ¶ 13(a); Ps. Br. at 2 ("In order to avoid the procedural limitation confronted in the first turnover action, Plaintiffs appended a suit for declaratory judgment to establish that the postnuptial agreement, which purports to transfer 100% ownership of the house to Gabrielle Raneri, was a void transfer in fraud of creditors and that homestead protection was unavailable because it was purchased with the proceeds of a criminal enterprise." (emphasis added)).
Plaintiffs appear to attempt to distinguish their constructive trust claim in Brupbacher I from the instant declaratory judgment action on the ground that in Brupbacher I they relied on proof that Raneri used criminally-derived proceeds to purchase the House whereas in the instant case they are maintaining that the Postnuptial Agreement constitutes fraud on creditors. The court rejects this reasoning. In the two cases, if plaintiffs are not suing on the basis of two incremental steps of the same fraudulent transaction, they are doing so based on connected transactions that are part of the same series, and thus the same nucleus of operative facts.
At issue in Brupbacher I, as in the present case, is the following scenario: Raneri and others used Hebco to defraud Fina and plaintiffs. They wired money owed to Fina to the Cayman Islands and then to Europe. Raneri arranged for some funds to be wired back to Dallas in the name of Mrs. Raneri's uncle, which Mrs. Raneri used to construct the House. Before construction commenced, Raneri and Mrs. Raneri entered into the Postnuptial Agreement. After the House was completed, Mrs. Raneri took title to it in her name. If the use of criminally-derived funds to construct the House is not part of the same transaction as the Raneris' entry into the Postnuptial Agreement, then the two events are a series of connected transactions. Plaintiffs could have brought the instant declaratory judgment claim in Brupbacher I to challenge the Postnuptial Agreement as the final leg of the international laundering of stolen funds from Dallas to Europe and back.
Notably, under the alleged scenario, Raneri did not construct the House with criminally-derived proceeds, take title in this name, and then convey title to Mrs. Raneri. He provided funds to her to build the House and then agreed, as part of the Postnuptial Agreement, that it would be and remain her separate property, regardless of the character or ownership of the property used to purchase it.
Plaintiffs' reliance on Texas Sand Co. v. Shield, 381 S.W.2d 48 (Tex. 1964), is misplaced. Res judicata was not at issue in that case. And to the extent that Texas Sand would provide that Raneri's conveyance of stolen funds to Mrs. Raneri is null and void, preserving equitable title to the money in Raneri, plaintiffs could have asserted that allegation in Brupbacher I. In other words, that plaintiffs had more than one remedy available to them does not excuse them from asserting both where, as here, each rested on the same nucleus of operative facts.
The court holds that plaintiffs' declaratory judgment action is barred based on the affirmative defense of res judicata.
III
In count two plaintiffs apply for a writ of execution directing the United States Marshal to levy on all of Raneri's nonexempt property, including the House, sell it, and deliver the proceeds to them to satisfy the judgment. Rule 69(a) provides that "[t]he procedure on execution, in proceedings supplementary to and in aid of a judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held." Under a judgment for money, a writ of execution is the appropriate vehicle to seize upon the nonexempt property of the judgment debtor — Raneri — that is subject to execution. See Tex. R. Civ. P. 630.
Defendants seek summary judgment on the ground that limitations bars plaintiffs' right to execute on the House. Rather than address whether count two is time-barred, the court raises sua sponte that defendants are entitled to summary judgment on the ground that plaintiffs are precluded from establishing, through their application for a writ of execution, that the House is Raneri's nonexempt property.
An initial writ of execution may be issued at any time until ten years have elapsed from rendition of the judgment, or the judgment becomes dormant. Tex. Civ. Prac. Rem. Code Ann. § 34.001 (Vernon 1997). See John F. Grant Lumber Co. v. Bell, 302 S.W.2d 714, 717 (Tex.Civ.App. 1957, writ ref'd); Cox v. Nelson, 223 S.W. 84, 86 (Tex.Civ.App. 1949, writ ref'd).
The court may grant summary judgment sua sponte if it gives the adverse party proper notice. Mo. Pac. R.R. Co. v. Harbison-Fischer Mfg. Co., 26 F.3d 531, 539 (5th Cir. 1994); Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 445 (5th Cir. 1991).
In Brupbacher I the court has held that plaintiffs' constructive trust claim is barred by limitations. Likewise, the court has determined supra at § II that res judicata bars relitigation of plaintiffs' declaratory judgment claim because it is based on the same nucleus of operative facts as was plaintiffs' constructive trust cause of action in Brupbacher I. The court raises sua sponte that, although plaintiffs are arguably entitled to a writ of execution, they cannot obtain one that would compel the sale of the House, and delivery of the proceeds to them to satisfy the judgment, because they are precluded by res judicata from establishing that the House is Raneri's nonexempt property,
IV
Plaintiffs' claim for turnover relief is denied without prejudice for the reasons stated in Brupbacher I. See Brupbacher I, 2000 WL 665560, at *2. The court is unable to make substantive determinations as to the rights of the parties in the context of a turnover action. See Resolution Trust Corp. v. Smith, 53 F.3d 72, 77 (5th Cir. 1995). Because substantive issues regarding ownership of the House remain unsettled, the court cannot grant plaintiffs' application for turnover relief.
* * *
The court grants in part defendants' February 26, 2001 motion for summary judgment. Plaintiffs shall have until July 16, 2001 to file a response in opposition to dismissal of count two. Defendants may file a reply brief no later than July 31, 2001. The court resets the trial of this case to the two-week docket of September 17, 2001.
SO ORDERED.