Germain Real Estate Company v. HCH Toyota , 778 F.3d 692 ( 2015 )

United States Court of Appeals
For the Eighth Circuit
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No. 13-3492
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Germain Real Estate Company, LLC; GM Enterprises, LLC
lllllllllllllllllllll Plaintiffs - Appellants
v.
HCH Toyota, LLC; Simmons First National Bank
lllllllllllllllllllll Defendants - Appellees
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No. 13-3723
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Germain Real Estate Company, LLC; GM Enterprises, LLC
lllllllllllllllllllll Plaintiffs - Appellants
v.
HCH Toyota, LLC; Simmons First National Bank
lllllllllllllllllllll Defendants - Appellees
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Appeals from United States District Court
for the Western District of Arkansas - Fayetteville
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Submitted: December 10, 2014
Filed: February 6, 2015
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Before WOLLMAN, COLLOTON, and BENTON, Circuit Judges.
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WOLLMAN, Circuit Judge.
Germain Real Estate Company, LLC (Germain), and GM Enterprises, LLC
(GM Enterprises), filed suit in federal district court against HCH Toyota, LLC (HCH
Toyota), and Metropolitan National Bank (Metropolitan), alleging claims related to
breach of contract. The district court1 dismissed the complaint, holding that Germain
and GM Enterprises were precluded from bringing the action because a state court
already had decided the issue underlying the claims alleged in their federal complaint.
The district court awarded attorneys’ fees to HCH Toyota and Metropolitan. We
affirm.
I.
In May 2005, GM Enterprises entered into a lease agreement with H2
Holdings, LLC (H2 Holdings), for certain real property in Benton County, Arkansas.
Paragraph 26 of the lease agreement granted options to purchase the property to GM
Enterprises affiliates Ken Morrand and Germain. The lease agreement provided that
if Morrand did not exercise his option within a certain period of time following the
fifth anniversary of the commencement date of the lease, Germain could exercise its
option to purchase.
1
The Honorable P.K. Holmes, III, Chief Judge, United States District Court for
the Western District of Arkansas.
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In June 2008, H2 Holdings, HCH Toyota, and GM Enterprises executed an
assignment and third amendment of the lease agreement. H2 Holdings assigned to
HCH Toyota its rights under the lease, HCH Toyota assumed H2 Holdings’s
obligations under the lease, and GM Enterprises agreed to the assignment and
assumption. The amendment set forth a new date for Morrand’s option period to
begin.
HCH Toyota acquired H2 Holdings’s interest in the property with proceeds
from a loan by Metropolitan. HCH Toyota secured the loan, in part, by placing a lien
of mortgage on the property. To that end, GM Enterprises, HCH Toyota, and
Metropolitan entered into a subordination, non-disturbance, and attornment
agreement (subordination agreement) in June 2008. The subordination agreement
provided that “[t]he Lease and all terms thereof, including, without limitation, any
options to purchase, rights of first refusal, rights of set off, and any similar rights, are
and shall be subject and subordinate to the Mortgage.” In October 2012, Germain
submitted notice of its decision to exercise its option. Three days later, Germain filed
suit against HCH Toyota in Arkansas state court, alleging that HCH Toyota had
refused to sell the property in accordance with the option to purchase. Metropolitan
intervened as a defendant.
Germain sought specific performance of the option to purchase. HCH Toyota
and Metropolitan moved to dismiss the complaint. After a hearing on the matter, the
state court dismissed the case without prejudice. Germain then filed an amended
complaint. HCH Toyota and Metropolitan again filed motions to dismiss for failure
to state facts upon which relief could be granted. The parties submitted briefs, and
the state court held another hearing, following which it granted the motions and
dismissed the case without prejudice. In its order of dismissal, the state court
concluded that Germain was not a party to the assignment and third amendment of the
lease agreement and that the subordination agreement had amended paragraph 26 of
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the lease agreement. Germain did not appeal from the judgment of the state court, nor
did it refile its lawsuit in state court.
Germain and GM Enterprises instead filed suit in federal district court, alleging
that they were entitled to specific performance of the option to purchase. In addition,
they sought declaratory relief and alleged causes of action for constructive fraud,
tortious interference with contract/business expectancy, and civil conspiracy. The
district court rejected the defendants’ argument that the court lacked jurisdiction
under the Rooker-Feldman doctrine. See D.C. Court of Appeals v. Feldman, 460 U.S.
462, 476 (1983); Rooker v. Fid. Trust Co., 263 U.S. 413, 416 (1923). It granted HCH
Toyota’s and Metropolitan’s motions to dismiss for failure to state a claim, however,
concluding that issue preclusion barred the claims set forth in the federal complaint
because the issue of Germain’s purchase option was fully litigated in state court. The
district court later denied Germain and GM Enterprises’s motion for reconsideration
and awarded attorneys’ fees to HCH Toyota and Metropolitan.2
II.
As an initial matter, we hold that the Rooker-Feldman doctrine does not bar
Germain and GM Enterprises’s claims. The Rooker-Feldman doctrine “applies only
to ‘cases brought by state-court losers complaining of injuries caused by state-court
judgments rendered before the district court proceedings commenced and inviting
district court review and rejection of those judgments.’” Edwards v. City of
Jonesboro, 645 F.3d 1014, 1018 (8th Cir. 2011) (quoting Exxon Mobil Corp. v. Saudi
Basic Indus. Corp., 544 U.S. 280, 284 (2005)). Germain and GM Enterprises do not
complain of injuries caused by the state-court judgment. The claims asserted in their
2
Simmons First National Bank merged with Metropolitan after this appeal was
initiated and has been substituted for Metropolitan as appellee. Consistent with the
parties’ briefs, we will refer to Simmons First National Bank as Metropolitan.
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federal complaint instead allege injuries caused by breach of contract and related
torts. Accordingly, we address whether the principles of preclusion apply to this case.
“Under the Full Faith and Credit Act, 28 U.S.C. § 1738, federal courts must
‘give the same preclusive effect to state court judgments that those judgments would
be given in the courts of the State from which the judgments emerged.’” Id. at 1019
(quoting Kremer v. Chem. Constr. Corp., 456 U.S. 461, 466 (1982)). We review de
novo the district court’s application of Arkansas preclusion law. Id. In doing so, we
have considered certain matters of public record—the state-court hearing transcripts
and order—as well as documents that are necessarily embraced by the federal
complaint—the lease, the assignment and third amendment, and the subordination
agreement. See Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir.
1999) (holding that, when considering a motion to dismiss, the court “may consider
some materials that are part of the public record or do not contradict the complaint,
as well as materials that are necessarily embraced by the pleadings” (citations and
internal quotation marks omitted)); see also Knutson v. City of Fargo, 600 F.3d 992,
1000 (8th Cir. 2010) (“[W]e see no reason why the District Court, like this Court,
could not take judicial notice of the publicly available state-court argument,
particularly where the issue at hand is possible preclusion of a federal claim as a
result of those same state-court proceedings.”).
“[Arkansas preclusion law] has two facets. One being issue preclusion and the
other being claim preclusion.” John Cheeseman Trucking, Inc. v. Pinson, 855 S.W.2d
941, 943 (Ark. 1993). Issue preclusion “bars relitigation of issues of law or fact
previously litigated, provided that the party against whom the earlier decision is being
asserted had a full and fair opportunity to litigate the issue in question and that the
issue was essential to the judgment.” Graham v. Cawthorn, 427 S.W.3d 34, 43 (Ark.
2013). Arkansas courts apply issue preclusion when the following elements are met:
(1) the issue sought to be precluded is the same as the issue involved in the prior
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litigation, (2) the issue was actually litigated, (3) the issue was determined by a valid
and final judgment, and (4) the determination was essential to the judgment. Id.
Germain and GM Enterprises argue that issue preclusion does not apply
because the state-court judgment was not final. They contend that a dismissal without
prejudice cannot be considered a final judgment. Arkansas courts have not addressed
the precise question raised in this case: When a state court decides certain issues and
dismisses a complaint without prejudice for failure to state facts upon which relief
could be granted, see Ark. R. Civ. P. 12(b)(6), can the judgment of dismissal
constitute a final judgment for purposes of issue preclusion? “When there is no state
supreme court case directly on point, our role is to predict how the state supreme
court would rule if faced with the issue[] before us.” Northland Cas. Co. v. Meeks,
540 F.3d 869, 875 (8th Cir. 2008) (quoting Cotton v. Commodore Exp., Inc., 459
F.3d 862, 864 (8th Cir. 2006)).
We believe that the Arkansas Supreme Court would hold that the state-court
judgment in this case was sufficiently firm to be considered final for purposes of issue
preclusion. In reaching this conclusion, we find section 13 of the Restatement
(Second) of Judgments instructive. See Beaver v. John Q. Hammons Hotels, L.P.,
138 S.W.3d 664, 669 (Ark. 2003) (“While the Restatement (Second) of Judgments
has not been adopted per se by this court, we have relied on [the general rule on issue
preclusion] in several instances.”). Section 13 explains that a final judgment for
purposes of issue preclusion “includes any prior adjudication of an issue in another
action that is determined to be sufficiently firm to be accorded conclusive effect.”
We have said that “[t]his may mean ‘little more than that the litigation of a particular
issue has reached such a stage that a court sees no really good reason for permitting
it to be litigated again.’” In re Nangle, 274 F.3d 481, 485 (8th Cir. 2001) (quoting
John Morrell & Co. v. Local Union 304A of the United Food & Commercial
Workers, 913 F.2d 544, 563 (8th Cir. 1990)); see also Pohlmann v. Bil-Jax, Inc., 176
F.3d 1110, 1112 (8th Cir. 1999) (explaining that under Missouri law, an issue actually
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decided in a case that was dismissed without prejudice is given preclusive effect in
a subsequent action between the same parties).
Although the state-court action was dismissed without prejudice, the state-court
judgment was sufficiently firm to be accorded conclusive effect. As set forth above,
the parties submitted briefs and oral argument to the state court. The order of
dismissal was short, but the oral argument transcripts make clear that the parties were
fully heard and the court was familiar with the relevant provisions set forth in the
lease agreement, the assignment and third amendment, and the subordination
agreement. Moreover, even though the case was dismissed without prejudice,
Germain could have appealed from the judgment. See Ark. Dep’t of Envtl. Quality
v. Brighton Corp., 102 S.W.3d 458, 468 (Ark. 2003) (holding that when a complaint
is dismissed without prejudice for failure to state facts upon which relief could be
granted, the plaintiff may elect to plead further or appeal). Accordingly, we hold that
the state-court judgment was final for purposes of issue preclusion and that Germain
and GM Enterprises are thus barred from relitigating the issue of Germain’s purchase
option.
Germain and GM Enterprises argue that even if issue preclusion applies, the
district court erred in dismissing their declaratory-judgment action. In the federal
complaint, Germain and GM Enterprises asked for declaratory relief to determine the
parties’ rights under the option-to-purchase provision, set forth in paragraph 26 of
the lease agreement. The state court determined that the subordination agreement had
amended the lease. The plain language of the subordination agreement rendered all
options to purchase subordinate to Metropolitan’s rights and subject to its approval.
Accordingly, based on the state court’s conclusion and the terms of the subordination
agreement, Germain was not entitled to specific performance of the option. Dismissal
of the federal declaratory-judgment action was appropriate.
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With respect to the award of attorneys’ fees to Metropolitan and HCH Toyota,
the district court undertook a detailed analysis of the work performed by defense
counsel. It found the parties’ filings to be duplicative and reduced their fees
accordingly. Germain and GM Enterprises contend that the fee award should have
been further reduced, but they have not shown that the district court abused its
discretion in awarding fees as it did. See G&K Servs. Co. v. Bill’s Super Foods, Inc.,
766 F.3d 797, 800 (8th Cir. 2014) (standard of review).
III.
The judgment is affirmed.
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