Commercial Litigation and Arbitration

RICO Claim Barred by Res Judicata Because It Was Not Asserted in Prior State Court Action Arising Out of the Same Nucleus of Operative Facts and State Court Did Not Split the Cause of Action

From Crooked Creek Properties, Inc. v. Ensley, 2009 U.S. Dist. LEXIS 100907 (M.D. Ala. Oct. 28, 2009):

[A]lthough not all of the causes of action are the same in the present action and the Autauga County Suit, res judicata's same-cause-of-action element will be satisfied if the claims in the former and present actions arise out of the same nucleus of operative facts. ***

[T]he court concludes that the conduct that forms the basis of this action and the former action arises out of the same nucleus of operative facts. In its simplest terms, the subject matter — ownership control of Danya Apartments and the validity of the mortgage — is the same in both suits. ***

Furthermore, the court agrees with Defendants that Crooked Creek's predecessor-in-interest could have brought the RICO claims in the Autauga County Suit. It is well established that state courts have concurrent jurisdiction with federal courts over civil RICO actions. See Tafflin v. Levitt, 493 U.S. 455, 458 (1990). Hence, the Eleventh Circuit, as well as other courts, has applied claim preclusion principles in barring a second suit advancing RICO claims that were not asserted in the prior proceedings. See Israel Disc. Bank Ltd. v. Entin, 951 F.2d 311, 315 (11th Cir. 1992) (applying res judicata to bar RICO claims and noting that, "[i]n determining whether the causes of action are the same, a court must compare the substance of the actions, not their form" (internal quotation marks omitted)); Regions Bank v. J.R. Oil Co., 387 F.3d 721, 732 (8th Cir. 2004) (holding that res judicata barred the plaintiff from asserting a RICO claim that it failed to raise in the prior bankruptcy proceeding). Accordingly, there were no "limitations on the subject matter jurisdiction" of the Autauga County Circuit Court to entertain the RICO claims. Lloyd Noland Found., 979 So. 2d at 795. Because the current RICO claims merely present a different legal avenue through which Crooked Creek is attempting to challenge the validity of the mortgage on Danya Apartments and the management agreement, Crooked Creek cannot avoid the res judicata effect of the Autauga County Suit judgment by re-labeling its claims as falling under the proscriptions of RICO.

Crooked Creek, however, argues that in the Autauga County Suit, the state court "split[]" Ms. Walden's causes of action, thereby precluding the application of res judicata. *** The court disagrees.

If in the first lawsuit, a plaintiff voluntarily omits claims that could have been decided based upon the factual transaction alleged, res judicata will bar a plaintiff's successive lawsuit that relies upon the previously-omitted claims. This omission by a plaintiff has been referred to as splitting a cause of action. See Ex parte Sears, Roebuck & Co., 895 So. 2d 265, 270 (Ala. 2004). As discussed above, this is what has occurred with the RICO claims brought by Crooked Creek in this lawsuit. However, "[w]here the court does the splitting and dilatoriness on the part of the plaintiff is not a consideration," res judicata does not preclude the plaintiff from filing a later action based upon the claims not addressed in the first action. Id.; see also id. at 270-71 (citing Nilsen v. City of Moss Point, 701 F.2d 556, 563 (5th Cir. 1983), for the principle that the rule "precluding litigants from splitting causes has no function where the court itself, rather than the litigant, does the splitting and does it by reason of no default on the part of the litigant, who timely advanced all his claims in the initial proceeding").

Here, the Autauga County Circuit Court did not split any causes of action. To the contrary, ... it granted summary judgment in favor of the Ensleys and ES Capital "as to all claims" brought by Ms. Walden.... Additionally, on appeal from the Autauga County Circuit Court's judgment, while the Supreme Court of Alabama restricted its review, it did so solely because "[t]he only issue briefed by Walden [was] the quiet-title claim." Walden, 987 So. 2d at 1116. Because Ms. Walden in effect abandoned her claims for appellate review, she cannot successfully argue that the Supreme Court of Alabama "d[id] the splitting." Sears, Roebuck & Co., 895 So. 2d at 270.

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