Raser Technologies v. Merrill Lynch , 2022 UT App 20 ( 2022 )

2022 UT App 20THE UTAH COURT OF APPEALS
RASER TECHNOLOGIES INC., ET AL., 1
Appellants,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH INC., ET AL.,
Appellees.
Opinion
No. 20200941-CA
Filed February 17, 2022
Third District Court, Salt Lake Department
The Honorable Todd M. Shaughnessy
No. 150906718
John T. Anderson, L. Rich Humpherys, Karra J.
Porter, Paul T. Moxley, Patrick E. Johnson, James W.
Christian, and Alan M. Pollack, and Stephen
Quesenberry, Attorneys for Appellants
James S. Jardine, Mark W. Pugsley, Carol Ann Funk,
Richard C. Pepperman II, John G. McCarthy,
Andrew J. Frackman, and Abby F. Rudzin,
Attorneys for Appellees
JUDGE DAVID N. MORTENSEN authored this Opinion, in which
JUDGES DIANA HAGEN and RYAN D. TENNEY concurred.
MORTENSEN, Judge:
¶1 Raser Technologies Inc. (Raser) claims that the district
court erred when it determined Raser’s racketeering claims
against Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill
1. The parties on appeal are not limited to those listed but also
include other parties whose names appear on the notice of
appeal or who have otherwise entered appearances in this court.
Raser Techs. v. Merrill Lynch
Lynch) were barred under the doctrine of res judicata based on a
final judgment rendered by a Georgia court. Seeing no error in
the district court’s determination, we affirm.
BACKGROUND
¶2 Raser, a corporation with its principal place of business in
Utah, sued Merrill Lynch in Georgia in 2012, alleging that
Merrill Lynch violated Georgia’s RICO and securities fraud
statutes, as well as other statutory and common law claims.
Raser’s claims centered on the contention that Merrill Lynch had
“substantially injured [Raser] while at the same time reaping
enormous profits by knowingly and intentionally creating,
loaning and selling unauthorized, fictitious and counterfeit
shares of Raser stock[] through various unlawful schemes and
devices.” Raser asserted that Merrill Lynch’s “unlawful conduct
occurred within the context of [its] pervasive and long-standing
pattern of naked short selling, which is an unlawful form of
market manipulation.” 2
2. In short selling, “an investor, suspecting that the price of a
stock will decrease, borrows the stock, sells it, waits for the price
to decline, purchases the stock at the lower price, returns the
stock to the lender, and pockets the difference in price as profit.”
Raser Techs., Inc. v. Morgan Stanley & Co., 2019 UT 44, ¶ 9, 449
P.3d 150 (cleaned up). A seller typically “has a three-day
settlement period to deliver the stock to the buyer.” Id. ¶ 10.
While short selling is a lawful practice in many cases, it is
unlawful when used to manipulate the stock price. Id. ¶ 9. In a
“naked short sale,” the investor neither owns nor has borrowed
the stock sold, “thus creating phantom shares of the stock.” Id.
¶ 10. When the shares cannot be delivered during the settlement
period, a “failure to deliver” or “fail” is created. Id. (cleaned up).
But because a system is in place to credit the shares to the buyer
(continued…)
20200941-CA 2 2022 UT App 20Raser Techs. v. Merrill Lynch
¶3 The Georgia court granted Merrill Lynch’s motion to
dismiss the complaint in 2013. Six of Raser’s claims were
dismissed with prejudice. The remaining claims were dismissed
without prejudice because they were improperly pled.
Regarding the claims dismissed without prejudice, the court
agreed with Merrill Lynch that under the principle of lex loci
delicti, 3 the laws of Utah governed Raser’s RICO claims.
Accordingly, the court dismissed Raser’s “remaining statutory
claims . . . without prejudice,” adding that Raser was “permitted
to re-plead securities and RICO claims based on the laws [of
Utah].” Raser unsuccessfully moved for reconsideration and
(…continued)
in spite of the failure to deliver, “an artificial oversupply of the
stock” may result. Id. ¶ 12. “When the market is flooded with the
chimerical shares, the stock price usually falls.” Id. The U.S.
Securities and Exchange Commission “heavily regulates naked
short selling” by confining its legality “to limited
circumstances.” Id. Here, Raser alleges that Merrill Lynch’s
“trading practices ventured outside of these limited
circumstances and into the realm of illegal activity.” See id. For a
more detailed background of the underlying dispute between
Raser and Merrill Lynch, see Raser Techs., Inc. v. Morgan Stanley
& Co., 2019 UT 44, ¶¶ 1–20, 449 P.3d 150.
3. Lex loci delicti is the shortened form of the Latin phrase lex loci
delicti commissi, which means “law of the place where the tort or
other wrong was committed.” Lex loci, Black’s Law Dictionary
(11th ed. 2019); see also Bryan A. Garner, Garner’s Dictionary of
Legal Usage 541 (3d ed. 2011); Risdon Enters., Inc. v. Colemill
Enters., Inc., 324 S.E.2d 738, 740 (Ga. Ct. App. 1984) (“Under
Georgia law, the lex loci delicti determines the substantive rights
of the parties. . . . The general rule is that the place of wrong, the
locus delicti, is the place where the injury sustained was suffered
. . . .” (cleaned up)).
20200941-CA 3 2022 UT App 20Raser Techs. v. Merrill Lynch
then appealed. The Georgia Court of Appeals affirmed the order.
See Raser Techs., Inc. v. Morgan Stanley & Co., 771 S.E.2d 517 (Ga.
Ct. App. 2015).
¶4 Raser then took up the Georgia trial court’s offer and
amended its complaint to include two claims (UPUAA Claims)
under, among other statutes, the Utah Pattern of Unlawful
Activity Act. See Utah Code Ann. §§ 76-10-1601 to -1609. A few
months later, Raser voluntarily dismissed these Utah-law-based
claims without prejudice in Georgia.
¶5 In November 2015, Merrill Lynch filed a motion in
Georgia for entry of final judgment against Raser. And in 2016,
the Georgia court granted the motion. Raser did not object to
entry of the final judgment in Georgia, nor did Raser appeal that
judgment.
¶6 The same day that it voluntarily dismissed its claims in
Georgia, Raser re-filed those claims in Utah state court. The
district court granted Merrill Lynch’s motion to dismiss the case
for lack of personal jurisdiction. On appeal, our supreme court
vacated the decision and remanded with instructions “to
examine [Merrill Lynch’s] contacts with Utah, assess the
conspiracy theory of jurisdiction, and determine how [Raser’s]
claim relates to [Merrill Lynch] and Utah and to address, if
necessary, [Merrill Lynch’s] alternative arguments for
dismissal.” Raser Techs., Inc. v. Morgan Stanley & Co., 2019 UT 44,
¶ 88, 449 P.3d 150.
¶7 On remand, Raser requested leave to file an amended
complaint to add parties, expand the facts, and modify its
claims. Merrill Lynch opposed the amendment, arguing that it
was futile because Raser’s claims were barred by res judicata.
The district court agreed that res judicata barred Raser’s claims:
“Because at least some claims arising out of these facts and
circumstances were dismissed [by the Georgia court] with
prejudice and on the merits, and this dismissal was affirmed on
20200941-CA 4 2022 UT App 20Raser Techs. v. Merrill Lynch
appeal, all claims that could have been asserted are likewise
barred by res judicata.” The district court explained,
[T]his court’s ruling does not leave a plaintiff in
these circumstances without a remedy. [Raser] had
a remedy laid out before [it]. [Raser] could have
litigated in Georgia—a forum [it] selected—the
racketeering claims brought and then dismissed
there. And if [Raser] had other claims under Utah
law arising out of the same facts and
circumstances, [it] could have sought leave to
amend [its] Georgia complaint and, presumably,
litigated those claims too. For reasons not
explained, [Raser] chose not to finish litigating [its]
claims in the place [it] selected to start litigating
them, a forum that had made clear multiple times
that it was more than willing to entertain those
claims and whose subsequent rulings confirm the
claims could have gone forward there.
....
The doctrine of res judicata, and its application
both to claims that were asserted and could have
been asserted, ensures the orderly resolution of
disputes by requiring parties to bring all claims
arising out of a common set of facts in a single
forum. Here, [Raser] selected that forum, Georgia,
and then inexplicably abandoned it after losing on
appeal. As a result, claims [it] could have asserted
there cannot be asserted here.
Given its res judicata determination, the district court also
denied Raser’s motion to amend.
¶8 Raser moved for reconsideration, a motion which the
district court denied, reiterating its earlier reasoning:
20200941-CA 5 2022 UT App 20Raser Techs. v. Merrill Lynch
In dismissing the Georgia racketeering claim, the
Georgia court invited [Raser] to file the Utah
racketeering claim and [Raser] did so. The Georgia
court never determined that the Utah racketeering
claim was subject to dismissal on “technical”
grounds. To the contrary, the Georgia court
appeared ready, willing, and able to adjudicate the
Utah racketeering claim right up until [Raser]
voluntarily dismissed it and refiled here [in Utah].
....
The Georgia court, upon dismissal of the Georgia
racketeering claim, did not conclude that a Utah
racketeering claim could not be heard there. It
concluded the opposite. It invited the filing of the
Utah racketeering claim, and [Raser] took the court
up on that invitation.
Along with denying the motion for reconsideration, the district
court granted Merrill Lynch’s motion to dismiss all of Raser’s
claims against it. The court entered final judgment, and Raser
appeals.
ISSUE AND STANDARDS OF REVIEW
¶9 The issue on appeal is whether the district court erred in
concluding that Raser’s claims were barred by the claim
preclusion branch of res judicata and, consequently, denying
Raser’s motion for leave to amend as futile and granting Merrill
Lynch’s motion to dismiss. “Whether a claim is barred by res
judicata is a question of law that we review for correctness.”
Gillmor v. Family Link, LLC, 2012 UT 38, ¶ 9, 284 P.3d 622. And a
decision granting a motion to dismiss is reviewed for
correctness. Citizens for Responsible Transp. v. Draper City, 2008
UT 43, ¶ 8, 190 P.3d 1245. “We review a denial of motions for
20200941-CA 6 2022 UT App 20Raser Techs. v. Merrill Lynch
leave to amend under an abuse of discretion standard. But when
the purported futility of the amendment justifies the denial of a
motion to amend, we review for correctness.” Salt Lake City Corp.
v. Kunz, 2020 UT App 139, ¶ 16, 476 P.3d 989 (cleaned up).
ANALYSIS
¶10 The claim preclusion branch of the doctrine of res judicata
applies when three elements are met:
First, both cases must involve the same parties or
their privies. Second, the claim that is alleged to be
barred must have been presented in the first suit or
be one that could and should have been raised in
the first action. Third, the first suit must have
resulted in a final judgment on the merits.
Snyder v. Murray City Corp., 2003 UT 13, ¶ 34, 73 P.3d 325(cleaned up). The claim preclusion branch of res judicata does
not require that every claim be resolved on the merits but that the
suit be resolved on the merits. See id. Thus, claim preclusion
“prevents relitigation of claims that could and should have been
litigated in the prior action but were not.” Penrod v. Nu Creation
Creme, Inc., 669 P.2d 873, 875 (Utah 1983). In other words, “when
there has been an adjudication, it becomes res judicata as to
those issues which were either tried and determined, or upon all
issues which the party had a fair opportunity to present and
have determined in the other proceeding.” Jacobsen v. Jacobsen,
703 P.2d 303, 305 (Utah 1985) (cleaned up).
¶11 Here, with regard to the first element, there is no dispute
that both the Utah and Georgia cases involved the same parties.
¶12 As to the second element, it is clear that the Georgia court
was willing and able to hear Raser’s UPUAA Claims—which
“could and should have been raised in the first action.” See
20200941-CA 7 2022 UT App 20Raser Techs. v. Merrill Lynch
Snyder, 2003 UT 13, ¶ 34 (cleaned up). There was no purely
technical ground, no procedural precondition, nor any
jurisdictional bar that the Georgia court identified as preventing
it from hearing the UPUAA Claims. And Raser points to none.
Indeed, after Raser had amended its complaint to include the
UPUAA Claims, there was no obstacle, procedural or otherwise,
to the Georgia court hearing and adjudicating the case.
¶13 That the Georgia court never adjudicated the UPUAA
Claims on the merits is of no import in the res judicata analysis.
What matters is not that the UPUAA Claims were never
adjudicated on the merits but that they “could and should have
been raised in the [Georgia] action.” See id. (cleaned up). Insofar
as claim preclusion is concerned, the fact that the Georgia court
dismissed six of Raser’s claims with prejudice and on the merits
means that any claims that could have been asserted with them
are barred by claim preclusion upon entry of final judgment in
the Georgia case. As our case law makes abundantly clear, this is
simply the way claim preclusion works. See Penrod, 669 P.2d at
875 (“The [claim preclusion branch of res judicata] prevents
relitigation of claims that could and should have been litigated
in the prior action but were not.”); see also Bradshaw v. Kershaw,
627 P.2d 528, 531 (Utah 1981) (“Res judicata means that neither
of the parties can again litigate that claim, demand or cause of
action or any issue, point or part thereof which he could have
but failed to litigate in the former action.” (cleaned up)); Belliston
v. Texaco, Inc., 521 P.2d 379, 380 (Utah 1974) (“If the parties have
had an opportunity to present their case and judgment is
rendered thereon, it is binding both as to those issues that were
tried and to those that were triable in that proceeding, and they
are precluded from further litigating the matter.”); Wheadon v.
Pearson, 376 P.2d 946, 947 (Utah 1962) (same).
¶14 Moreover, not only could the UPUAA Claims have been
brought in Georgia, they should have been brought there. As the
district court observed, the Georgia claims that were dismissed
20200941-CA 8 2022 UT App 20Raser Techs. v. Merrill Lynch
arose out of the same “facts and circumstances” that supported
the UPUAA Claims. Nowhere does Raser dispute that the “same
operative facts,” see Gillmor v. Family Link, LLC, 2012 UT 38, ¶ 14,
284 P.3d 622 (cleaned up), support both sets of claims. And
because Raser “had a fair opportunity to present and have
determined” the UPUAA Claims in the Georgia proceeding, it
not only could have brought those claims, it also should have
brought them in that proceeding, where the final judgment was
ultimately entered. See Jacobsen, 703 P.2d at 305 (cleaned up). 4
4. On appeal, insofar as Raser asserts that Georgia law should
apply and that Georgia law on res judicata is materially different
from Utah’s, we disagree. Both are the same in regard to the
preclusion of claims that could have been brought in a first
action. In Georgia, “it is well established that the doctrine of res
judicata prevents the re-litigation of all claims which have
already been adjudicated, or which could have been adjudicated,
between identical parties or their privies in identical causes of
action.” Dove v. Ty Cobb Healthcare Sys., Inc., 729 S.E.2d 58, 61
(Ga. Ct. App. 2012) (cleaned up); see also Mobley v. Sewell, 487
S.E.2d 398, 400 (Ga. Ct. App. 1997) (“Res judicata prevents
plaintiffs from asserting claims arising from the same transaction
piecemeal or presenting only a portion of the grounds on which
relief is sought and leaving the rest for a second suit if the first
fails.”); Piedmont Cotton Mills, Inc. v. Woelper, 498 S.E.2d 255, 256
(Ga. 1998) (“[I]t is only where the merits were not and could not
have been determined under a proper presentation and
management of the case that res judicata is not a viable defense.
If, pursuant to an appropriate handling of the case, the merits
were or could have been determined, then the defense is valid.”);
accord Legacy Academy, Inc. v. Doles-Smith Enters., Inc., 812 S.E.2d
72, 78–79 (Ga. Ct. App. 2018); Waldroup v. Greene County Hosp.
Auth., 463 S.E.2d 5, 6 (Ga. 1995). Indeed, this principle is
enshrined in Georgia statutory law: “A judgment of a court of
(continued…)
20200941-CA 9 2022 UT App 20Raser Techs. v. Merrill Lynch
¶15 The only substantive dispute concerns the third element,
namely, “whether there was a final judgment on the merits in
the Georgia case.” Raser contends on appeal that the Georgia
court never “reached the merits” of the UPUAA Claims. Its
argument is that the Georgia court “only provisionally dismissed
[the Georgia RICO claims] without prejudice on the basis of a
threshold procedural choice of law principle (lex loci delicti)” and
later dismissed the UPUAA Claims only when Raser filed for its
voluntary dismissal. Therefore, Raser argues, “the merits [of the
UPUAA Claims] were never considered, let alone decided.”
From this perspective, Raser asserts that the Georgia court
dismissed the UPUAA Claims on “purely technical grounds”
based on Raser’s “failure to satisfy a procedural precondition
that the [UPUAA Claims] were to be informed by, and pursued
under, the Utah racketeering and securities fraud statutes.”
(Cleaned up.) 5
(…continued)
competent jurisdiction shall be conclusive between the same
parties and their privies as to all matters put in issue or which
under the rules of law might have been put in issue in the cause
wherein the judgment was rendered until the judgment is
reversed or set aside.” Ga. Code Ann. § 9-12-40 (West 2021).
Thus, whether we apply Utah or Georgia law matters not to our
analysis. They are materially the same in this matter, and Raser
loses under both states’ laws.
5. The assertion that the Georgia court dismissed the UPUAA
Claims on “purely technical grounds” is essential to Raser’s
argument. This importance is rooted in Georgia statutory law,
which provides, “Where the merits were not and could not have
been in question, a former recovery on purely technical grounds
shall not be a bar to a subsequent action brought so as to avoid
the objection fatal to the first. For a former judgment to be a bar
(continued…)
20200941-CA 10 2022 UT App 20Raser Techs. v. Merrill Lynch
¶16 Raser’s argument misses the mark by mischaracterizing
the nature of the Georgia court’s treatment of the UPUAA
Claims. The Georgia court did not dismiss those claims on
“purely technical grounds” for failure to satisfy a “procedural
precondition.” Rather, as the district court observed, “The
Georgia court never determined that the Utah racketeering claim
was subject to dismissal on ‘technical’ grounds. To the contrary,
the Georgia court appeared ready, willing, and able to
adjudicate the Utah racketeering claim right up until [Raser]
voluntarily dismissed it and refiled here [in Utah].” In other
words, the Georgia court never ruled that it lacked jurisdiction
to hear the UPUAA Claims or that there was some “procedural
precondition” that Raser had to satisfy before the court gained
jurisdiction to hear those claims. Rather, the Georgia court
determined that under the doctrine of lex loci delicti, Raser’s
RICO claims were governed by the law of Utah because Utah is
where Raser allegedly sustained injury. Importantly, the Georgia
court did not say that it could not hear the case because the law of
Utah applied, but instead said that it would need to apply Utah
(…continued)
to subsequent action, the merits of the case must have been
adjudicated.” See Ga. Code Ann. § 9-12-42 (West 2021). Raser
asserts that the dismissal of the UPUAA Claims was “rooted in
correctable procedural grounds short of the merits” that does
“not preclude a subsequent action to remedy the threshold
defect.” But that is not what happened here. As we explain,
Raser ignores the requirement identified in the first clause of the
statute, which states that for a former adjudication not to have
preclusive effect, the issue in a new action “could not have been
in question.” See id. Here, the UPUAA Claims clearly could and
should have been adjudicated in the first action; so even if it is
true that they were dismissed on “purely technical grounds,” it
is of no import here because they could and should have been
brought in the Georgia action.
20200941-CA 11 2022 UT App 20Raser Techs. v. Merrill Lynch
law to decide the case. To that end, the Georgia court explicitly
permitted Raser to “re-plead within a reasonable time” its
“RICO claims based on the laws” of Utah. And of course, the
Georgia court always had jurisdiction because Raser freely
elected to file its lawsuit in that court and Raser points to no
other procedural impediments.
¶17 Raser apparently accepted the Georgia court’s invitation,
as evidenced by the filing of an amended complaint to include
the UPUAA Claims. Moreover, it appears that the Georgia court
was set to hear these claims until Raser voluntarily dismissed
them. But voluntary dismissal does not somehow prevent the
operation of res judicata. If voluntary dismissal had the effect of
overcoming res judicata, then it would make the requirement of
asserting claims that “could and should have been raised,” see
Snyder, 2003 UT 13, ¶ 34 (cleaned up), all but meaningless.
Indeed, using “a voluntary dismissal without prejudice . . . as a
mechanism for appealing an otherwise non-final order” is a
strategy “not without its risks.” WDIS, LLC v. Hi-Country Estates
Homeowners Ass’n, 2019 UT 45, ¶ 21 n.12, 449 P.3d 171. “For
example, under the doctrine of claim preclusion, an appellant
who loses on appeal could be precluded from reasserting its
voluntarily dismissed claims in another case.” Id. Thus, we agree
with the district court’s observation:
If a plaintiff is permitted to pull up stakes and
abandon the jurisdiction where they start litigating
a case after getting an unfavorable substantive
ruling, then nothing would prevent parties from
continually testing the waters in search of a more
favorable forum. Nor would anything prevent
litigating different claims arising from the same
facts in different jurisdictions.
¶18 Borrowing the words of the district court, “under black
letter principles of res judicata,” the UPUAA Claims, which were
20200941-CA 12 2022 UT App 20Raser Techs. v. Merrill Lynch
based on the same underlying facts as the Georgia claims, were
barred from relitigation the moment the Georgia court entered
final judgment on the Georgia claims. Simply put, the UPUAA
Claims could and should have been raised in the Georgia action.
Indeed, the Georgia court explicitly invited Raser to assert the
UPUAA Claims in Georgia, and Raser initially accepted that
invitation. But Raser elected to voluntarily dismiss the UPUAA
Claims in Georgia and re-file them in Utah. And while Utah may
well have presented a more favorable forum for Raser, the
doctrine of res judicata precludes that option.
CONCLUSION
¶19 We discern no error in the district court’s determination
that Raser’s UPUAA Claims were barred by the doctrine of res
judicata and, therefore, any amendment to its pleadings would
have been futile. Affirmed.
20200941-CA 13 2022 UT App 20