Opinion
Case No 2:98-CV-281TC
May 15, 2003
ORDER
This case involves an ongoing dispute regarding title to certain minerals taken from federal lands. Plaintiff United States of America ("United States" or "the govermnent") alleges that Defendant Magnesium Corporation of America ("MagCorp") illegally took minerals from the groundwater of the federal public lands of the West Desert of Utah. On January 19, 2001, upon the stipulation of the State of Utah and the United States, the court entered an order dismissing the State of Utah as a party to the case, Then on July 18, 2001, the court dismissed the entire lawsuit on the ground that. the State of Utah was an indispensable party under Rule 19 of the Federal Rules of Civil Procedure. The United States now asks the court to reconsider this order and has filed a Motion to Alter or Amend Judgment Dismissing Lawsuit and, if Necessary, for Relief from Judgment Dismissing the State of Utah.
This case is complicated by the fact that following the July 18, 2001 Order, MagCorp sought protection under Chapter 11 of the Bankruptcy Code, filing a petition in the United States Bankruptcy Court, Southern District of New York. Accordingly, MagCorp contends that all proceedings in this case are automatically stayed pursuant to 11 U.S.C. § 362. The government disagrees, arguing that the exception to the automatic stay provision of 11 U.S.C. § 362 applies, and that this case could, if the court granted its motion to amend, go forward. Therefore, the questions to be decided are: (1) whether the exception to the automatic stay provision applies; and, only in the event that it does apply, (2) whether the July 12, 2001 Order dismissing this action should be amended.
Discussion
1. Applicabilty of the Automatic Stay Provision
Perhaps out of an abundance of care, the United States provides substantial authority that this court has jurisdiction (concurrent with the bankruptcy court) to decide the question of the applicability of the automatic stay to this action. There appears little question but that the court can decide this issue.
The automatic stay provision of 11 U.S.C. § 362 provides in relevant part that with some exceptions, a bankruptcy petition "operates as a stay, applicable to all entities, of . . . (1) the commencement or continuation . . . of a judicial. administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title." 11 U.S.C. § 362 (a)(1). The exceptions carved out by 11 U.S.C. § 362 (b) include in relevant part
the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's or organization's police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit's or organization's police or regulatory power.11 U.S.C. § 362 (b)(4). The government argues that this action falls within this "police or regulatory exception," given that the government has alleged in its complaint that MagCorp committed fraud.
The government alleged in its Second Amended Complaints that Mag Corp made false statements to federal authorities investigating the source of MagCorp's brine collection and fraudulently transferred assets.
When faced with the question of whether the exception found in 11 U.S.C. § 362 (b)(4) applies, the Tenth Circuit focuses on whether a governmental action effectuates public policy or whether it merely furthers the government's pecuniary interest. Eddleman v. United States Dep't of Labor, 923 F.2d 782, 791 (10th Cir. 1991) (articulating two separate tests, the "pecuniary purpose" test and the "public policy" test). As the Tenth Circuit explained, if the government action effectuates public policy, the exception applies; if the government action is primarily to protect a pecuniary interest, the exception does not apply. Id. 791.
In this case, the United States claims that its False Claims Act ("FCA") claim against MagCorp exempts its present action against MagCorp. Neither Tenth Circuit law nor the law of our district addresses the specific question of whether FCA cases seeking damages and civil penalties fall within the exception to the automatic stay. The United States relies on the Eighth Circuit case of In re Commonwealth Cos., in which the court found that an action brought by the United States under the FCA was excluded from the automatic stay, regardless of the money judgment sought by the United States. 913 F.2d 518, 524, 526 (8th Cir. 1990). The Commonwealth Court held that "[t]he FCA is certainly a fraud law" which "serves other purposes [than enforcement of contractual rights] that bring actions to enforce it within the police or regulatory power exception." Id. at 525. Under the court's analysis, "the entry [rather than enforcement] of a money judgment would simply fix the amount of the government's unsecured claim against the debtors. It would not convert the government into a secured creditor, force the payment of a prepetition debt, or otherwise give the government a pecuniary advantage over other creditors of the debtors' estate." Id. at 524
Other decisions from outside this jurisdiction demonstrate that FCA claims are excepted from the automatic stay. See, e.g., In re Universal Life Church, 128 F.3d 1294, 1298 (9th Cir. 1997) ("Detection of fraud had been sustained as a valid basis for invoking the exception even when there is an additional pecuniary interest at stake [as, for example, in a civil suit brought pursuant to the FCA]."); United States ex rel. Doe v. X. Inc., 246 B.R. 817, 818 (E.D. VA. 2000) ("[T]here is ample authority holding that laws, such as the False Claims Act, that are designed to prevent or stop fraud, or to fix damages for fraud already committed, are police or regulatory laws.").
Because the United States has brought allegations under the FCA, this action is not subject to the automatic stay provision of § 362(a)(1).
2. The United States' Motion to Alter or Reconsider
The court has entered two Orders addressing the presence of the State of Utah as a party to this action. The January 19, 2001 Order dismissed the State of Utah as a party upon the stipulation of the United States and the State of Utah. The July 12, 2001 Order (Judgment entered July 18, 2001) granted MagCorp's motion to dismiss for failure to join the State of Utah as an indispensable party under Rule 19 of the Federal Rules of Civil Procedure in Rule 19(b). Specifically, the court reasoned that (1) it is unclear whether MagCorp would be afforded complete relief if the State of Utah were not a party to this suit; (2) the unsettled extent of Utah's mineral rights makes MagCorp subject to multiple and perhaps inconsistent obligations; (3) Utah is not subject to court ordered joinder due to its Eleventh Amendment immunity; (4) the court could not conceive of a way that it could fashion a remedy that would avoid the possibility of inconsistent obligations; (5) a judgment rendered in this action would not be adequate, because it is not possible to make a determination regarding the potential extent of Utah's continued rights to minerals in the West Desert in view of the uncertain scope of those rights under the terms of the Stipulation of Dismissal; and (6) the United States will have an ample opportunity to seek an adequate remedy, either by fashioning a complaint that names the State of Utah as a party, or by pursuing its cause of action in State Court.
In its Motion to Alter or Amend, the United States requests that the court (1) pursuant to Rule 59(e) of the Federal Rules of Civil Procedure, alter its July 12, 2001 Judgment dismissing the action for failure to join the State of Utah; and if necessary, (2) pursuant to Rule 60(b), vacate its January 19, 2001 Order and reinstate the State of Utah as a party in this case.
(a) Rule 59(e)
Under the law of this jurisdiction, "[a] Rule 59(e) motion to alter or amend the judgment should be granted only to correct manifest errors of law or to present newly discovered evidence." Caprin v. Simon Transp. Services, et al., 2001 WL 740535, at *1 (D.Utah, Mar. 12, 2001) (quotingPhelps v. Hamilton, 122 F.3d 1309, 1324 (10th Cir. 1997)). A motion for reconsideration is an "inappropriate vehicle to reargue an issue previously addressed by the court when the motion merely advances new arguments. or supporting facts which were available at the time of the original motion. `Absent extraordinary circumstances, . . . the basis for the second motion must not have been available at the time the first motion was filed.'" Basic Research L.L.C. v. Cytodyne Technologies, Inc., 2001 WI. 740541. at * 1 (D. Utah, Apr. 6, 2001) (quoting Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000)). Furthermore, "[i]t is not appropriate to revisit issues already' addressed or advance arguments that could have been raised in prior briefing." Id.
In its July 12, 2001 Order, the court held in relevant part that
the unsettled extent of Utah's mineral rights makes MagCorp subject to multiple and perhaps inconsistent obligations. While the court does not believe that the State of Utah would take a position counter to that which it takes in the Stipulation of Dismissal, the unsettled issue regarding the amount of minerals on the West Desert to which Utah remains entitled make it possible, if not likely, that a suit by MagCorp in State Court, against the State of Utah. under MagCorp's mineral lease with Utah could turn on a factual determination by the State Court regarding the amount of minerals to which Utah retains title that would be directly at odds with a factual determination on the same issue made by this court. In such a scenario, MagCorp could likely be held liable for improper appropriation of minerals from the Federal Government, even as it paid the State of Utah royalties under its lease for the same minerals. As such, MagCorp would be at substantial risk of inconsistent obligations. Utah is therefore a necessary party under Rule 19(a).
Now, in its opening memorandum supporting its Motion to Alter or Amend, the government again argues that the State "affirmatively disclaimed any interest in the groundwater minerals" in its pleadings, statements in court, and the Stipulation for Dismissal. Suggesting that the court based its "inconsistent obligations" holding on "hypothetical events that do not pertain to the subject matter of the lawsuit," the government reiterates its position that the State's interest in the minerals has been conclusively determined. However, the government "must show more than a disagreement with the court's decision, and `recapitulation of the cases and arguments considered by the Court before rendering its original decision' fails to carry this burden." Caprin, 2001 WL at *1 (quotingN.L. Indus., Inc. v. Commercial Union Ins. Cos., 938 F. Supp. 248, 249-50 (D.N.J. 1996) (internal quotes omitted)). The July 12, 2001 Order quotes a significant portion of the Stipulation of Dismissal, and thoroughly addresses the question of the State's un-ascertained continuing mineral rights.
Also inadequate are the government's arguments that (1) alternatives to dismissal are available that avoid any risk of prejudice; and (2) the United States may not have an adequate remedy if' this action is dismissed for nonjoinder. The first of these arguments is quite obviously an argument that "could have been raised in prior briefing." Basic Research, 2001 WL at *1 (quoting Servants of the Paraclete, 204 F.3d at 1012). The second was decided, counter to the government's position, in the July 12, 2001 Order: "the United States will have an ample opportunity to seek an adequate remedy, either by fashioning a complaint that names the State of Utah as a party, or by pursuing its cause of action in State Court."
After Defendants reiterated in their opposing memorandum that a Rule 59(e) motion "should be granted only `to correct manifest errors of law or to present newly discovered evidence,'" Phelps, 122 F.3d at 1309. the United States advanced its argument that there is such "new evidence." However, this claim of new evidence appears to be an after-thought, and none of the claimed new evidence changes the conclusion that the litigation cannot proceed without the State of Utah.
(b) Rule 60(b)
Whether to gram or deny a motion for reconsideration is committed to the court's discretion. Hancock v. City of Oklahoma City, 857 F.2d 1394. 1395 (10th Cir. 1988) (court abused its discretion in denying petitioner's motion for reconsideration following dismissal as uncontested motion). In exercising that discretion, courts in general have recognized three major grounds justifying reconsideration; (1) an intervening change in controlling law; (2) new evidence previously unavailable; and (3) the need to correct clear error or prevent manifest injustice. See Servants of the Paraclete, 204 F.3d at 1012; see also, Anderson v. United Auto Workers, 738 F. Supp. 441, 442 (D. Kan. 1990) (motion to reconsider appropriate when the court has obviously misapprehended a party's position, the facts, or the applicable law, or when a party introduces new evidence that could not have been obtained through exercise of due diligence). Essentially, on a motion to reconsider under Rule 60(b). "relief' is extraordinary and may only be granted in exceptional circumstances." that is, compelling circumstances beyond the moving party's control. Bud Brooks Trucking v. Bill Hodges Trucking, 909 F.2d 1437, 1440 (10Th Cir. 1990) (citations omitted).
The United States has not attempted to any extent to address this standard. Had it done so, it clearly could not demonstrate "exceptional circumstances"justifying reinstatement of the State of Utah as a party' to this case. First, the government has raised no issues of intervening change in controlling law. Second, the "new evidence" that the government proposes (MagCorp's abandonment of its Knolls facility and foregoing its leases with the State of Utah) appears to militate against rather than for reinstating Utah as a party. Finally, the government cannot credibly argue that the Court's decision to dismiss Utah upon the parties' Stipulation of Dismissal was "clear error" resulting in "manifest injustice." Nor is such an argument appropriate Under Rule 60(b), where reinstatement of the State of Utah was not an issue before the court on MagCorp's Rule 19 motion. In its opposing memorandum to that motion, the United States did not seek to undo the stipulation, but instead emphasized its validity and importance in clarifying the relative ownership interests of the parties. Most importantly, the United States has provided no authority that would allow the court to dissolve an agreement to which the State of Utah (not a movant here) was a party.
In sum, the United States has put forth no arguments that would warrant vacating the court's January 18, 2001 Order or reinstating the State of Utah as a party to this action.
1. The United States' Motion for a Ruling that the Exception to the Automatic Stay' Provision of 11 U.S.C. § 362 Applies is GRANTED;
2. The United States' Motion to Alter or Amend Judgment is DENIED.
SO ORDERED