Opinion
226-2022-CV-00235
12-07-2022
Matthew Arel, as Member of Curtis Commons, LLC, and Curtis Commons, LLC v. Clifford Williams, as Member of Curtis Commons, LLC
ORDER
DAVID A. ANDERSON ASSOCIATE JUSTICE
The plaintiffs brought the action in the present docket ("No. 235") against the defendant seeking the appointment of a liquidating trustee over Curtis Commons, LLC ("CC"). This action follows the initiation of a suit brought by CC and Mr. Williams against Mr. Arel and others in Hillsborough County Superior Court-Southern District (Docket No. 226-2022-CV-218, or "No. 218") that arose from the same underlying events as No. 235 and which itself was filed after Mr. Arel moved for arbitration. Presently before the Court is Mr. Williams's motion to dismiss the No. 235 Complaint and/or strike Count II as a mandatory counterclaim that should have been filed in No. 218. Mr. Arel objects. The Court held a hearing on November 3, 2022. For the reasons that follow, Mr. Williams's motion is DENIED.
Factual Background
Consistent with the standard of review, the Court draws the following facts from the record. CC is a limited liability company formed for the purpose of building a residential development in Milford called Curtis Commons (the "Project"). (No. 235 Compl. ¶ 8.) Mr. Arel and Mr. Williams each have a 50% membership interest in CC. (Id. ¶¶ 9, 10.) Mr. Arel and Mr. Williams have an operating agreement in place (the "Agreement") that provides for equal sharing of profits and losses. The Agreement further specifies that any controversy arising under the Agreement will be resolved through arbitration according to rules of the American Arbitration Administration ("AAA"). (Id. ¶¶ 10, 11.) Mr. Arel is a member of Better Built Homes, LLC ("BBH"), which CC retained to install roads and construct homes for the Project. (Id. ¶¶ 12, 13.)
Work on the Project began in January 2019, and the final home was sold in September 2021. (Id. ¶ 14.) In early 2021, as the work was ongoing, disputes arose between Mr. Arel and Mr. Williams. For example, Mr. Williams began questioning the Project's costs and profits, resulting in his refusal to authorize CC to make a number of payments to BBH and other organizations. (Id. ¶¶ 15, 16, 19.) On February 18, 2022, Mr. Arel and BBH filed an arbitration demand with the AAA against CC, in which Mr. Arel brought claims for breach of contract, unjust enrichment, and breach of fiduciary duties. (See Obj. Mot. Dismiss, Ex. 2.) Mediation was scheduled for June 16, 2022.
Nevertheless, on June 6, 2022, CC, through Mr. Williams, filed the No. 218 action asserting a variety of claims against several defendants including BBH, Mr. Arel, and Melissa Arel, who CC/Mr. Williams assert is a member of BBH and a representative of a real estate agency retained to sell the homes. CC/Mr. Williams alleged that Mr. Arel unilaterally made payments from CC's account to Ms. Arel, and that Ms. Arel received excess commissions. (See No. 235 Compl.) BBH filed a counterclaim against CC and Mr. Williams in No. 218 for breach of contract and unjust enrichment.
Mr. Arel, Ms. Arel, and BBH moved to compel arbitration and stay the action pursuant to the Agreement's arbitration clause. The court (Colburn, J.) granted the motion as to all of the claims asserted against Mr. Arel in his capacity as a manager of CC, but denied it as to all claims against BBH, Ms. Arel, and Mr. Ayer individually and in his capacity as a member of BBH. See generally Curtis Commons, LLC v. Melissa Arel, et al., No. 226-2022-CV-218, Court Doc. 36 (Sep. 13, 2022) (Colburn, J.) The court also granted in part and denied in part Ms. Arel's motion to dismiss the claims asserted against her. See generally Curtis Commons, LLC v. Melissa Arel, et al., No. 226-2022-CV-218, Court Doc. 37 (Sep. 24, 2022) (Colburn, J.)
On June 20, 2022, during the pendency of the No. 218 action, Mr. Arel filed this action against Mr. Williams and CC for dissolution and appointment of a liquidating trustee (Count I); and against Mr. Williams individually for breach of fiduciary duties (Count II). (No. 235 Compl. ¶¶ 29, 30.) As of the filing of Mr. Williams's motion to dismiss, the arbitration case remains pending. In addition, several claims CC/Mr. Williams asserted against Mr. Arel and others remain pending in No. 218 such as breach of contract, negligent misrepresentation, and breach of duty of care.
Analysis
Mr. Williams now moves to dismiss the No. 235 Complaint or strike Count II. When ruling on a motion to dismiss, the issue is whether "the plaintiff's allegations are reasonably susceptible of a construction that would permit recovery." Mentis Scis., Inc. v. Pittsburgh Networks, LLC, 173 N.H. 584, 588 (2020). In making this inquiry, the Court assumes the factual allegations in "the plaintiff's pleadings to be true and construe[s] all reasonable inferences in the light most favorable to the plaintiff." Id. Ultimately, the Court must "look at the facts alleged in the complaint and the applicable law and determine whether the allegations provide a basis for legal relief." Mentis Scis., Inc., 173 N.H. at 588. "If they do not," the Court should dismiss the complaint. Id.
Mr. Williams asserts that the claims brought in No. 235 arise from the same transaction or occurrence as those asserted in the previously-filed No. 218 Complaint. He contends that the No. 235 claims are thus compulsory counterclaims that should have been raised in No. 218 and are now barred. In support, he relies on Eastern Marine Construction Corp. v. First Southern Leasing, Ltd., 129 N.H. 270 (1987), in which the New Hampshire supreme court ruled that an action filed subsequent to concluded litigation on the same cause of action was barred. (See generally Mot. Dismiss); E. Marine, 129 N.H. at 274-75. Mr. Arel replies that Mr. Williams's reliance on Eastern Marine is misplaced because in that case, the subsequent suit was dismissed after a final judgment was rendered in the first action, which is not the case here because No. 218 remains pending. (Obj. Mot. Dismiss ¶¶ 5, 6).
As Mr. Arel points out, the Eastern Marine court dismissed the subsequently-filed action on res judicata grounds. 129 N.H. at 273. This doctrine "prevents parties from relitigating matters actually litigated and matters that could have been litigated in the first action." Merriam Farm, Inc v. Town of Surry, 168 N.H. 197, 199 (2015). The Court applies the doctrine if the following three elements are met: "(1) the parties are the same or in privity with one another; (2) the same cause of action was before the Court in both instances; and (3) the first action ended with a final judgment on the merits." Id. Crucially, there has been no final decision on the merits of No. 218. Most of the No. 218 claims remain pending, either in the superior court in Hillsborough South or in arbitration. Accordingly, even assuming the first two res judicata elements are met, the third element is not satisfied and so res judicata does not bar No. 235. See Merriam Farm, 168 N.H. at 199; Petition of Donovan d/b/a Donovan Group Home, 137 N.H. 78, 81 (1993) (holding res judicata inapplicable where there was an appeal pending and thus there was no final judgment).
To the extent Mr. Williams argues that, lack of final judgment notwithstanding, it is impermissible for two cases on the same cause of action to pend at once, the Court disagrees. Rule 10(a) of the New Hampshire Rules of Civil Procedure requires a party to assert as a counterclaim any claim it has at the time that "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim . . . ." N.H. R. Civ. P. 10(a). The parties do not appear to dispute that No. 235 arises out of the same transaction or occurrence that is the subject matter of No. 218. However, even assuming No. 235 is a compulsory counterclaim to No. 218, the Court is unaware of any authority mandating that it dismiss a compulsory counterclaim that was not filed in the original action when there has been no decision on the merits of the original action. While the Eastern Marine court wrote that a whole controversy, including compulsory counterclaims, often must be brought in the same action, the court did not go so far as to say that a party's failure to do so requires dismissal of the compulsory counterclaims. See E. Marine, 129 N.H. at 274-75.
Importantly, the Eastern Marine court distinguished that situation from Morency v. Plourde, 96 N.H. 344 (1950). In Morency, the plaintiffs brought an action for damages against their landlord based on his cutting off their utilities and, while that action was pending, also requested an injunction pendent lite to compel the landlord to provide them with those utilities. See E. Marine, 129 N.H. at 276 (citing Morency, 96 N.H. at 344). The Morency court held that res judicata did not bar the action for damages even after the injunction was granted because "[t]he use of equity to preserve the status quo is not necessarily a bar to a pending law action for damages formerly suffered." Morency, 96 N.H. at 345. The Eastern Marine court stated that Morency was inapplicable to the case then before them because, in Eastern Marine, "the two actions were not pending simultaneously." E. Marine, 129 N.H. at 277. The fact that the supreme court pointed out that the holding in Morency did not apply in Eastern Marine based on there not being two cases pending-in other words, where there had been a decision on the merits in the original Eastern Marine action-suggests that the supreme court does not categorically disapprove of two actions pending at once, even when they are based on the same underlying facts or occurrence.
In fact, a number of courts have held that the preclusive effect of a compulsory counterclaim only bars a second action after judgment has been rendered in the first. See Champion Laboratories, Inc. v. Burch, No. 06-CV-4031-JPG, 2006 WL 3370174, at *1 (S.D. Ill. Nov. 21, 2006) ("[T]he better view is that claims should not be dismissed pursuant to Rule 13 in the absence of a final judgment in the first-filed action."); Super Natural Distributors, Inc. v. MuscleTech Research & Dev., 140 F.Supp.2d 970, 975 (E.D. Wisc. 2001) (finding compulsory counterclaim not barred where previously-dismissed action was not a decision on the merits); Winterhalder v. Burggraf Restoration, Inc., 256 P.3d 84, 90-91 (Okla.Civ.App. 2011) (same); see also 3 James WM. Moore et al., Moore's Federal Practice § 13.14[1] (3d ed. 1997) ("A claim that should have been pleaded as a compulsory counterclaim in the first suit will only be barred in the subsequent action if a responsive pleading was required to be, or was served in the earlier action, and a final judgment was rendered in that suit."). The Court agrees with these conclusions and finds that, because there has been no decision on the merits of No. 218, No. 235 is not barred just because it is a compulsory counterclaim.
Conclusion
In sum, No. 235 is not barred by res judicata and the Court is not required to dismiss No. 235 as a compulsory counterclaim because there has been no final decision on the merits of No. 218. For these reasons and because of the uniquely complex procedural posture of this case-with multiple claims pending before two courts as well as arbitration filed by Mr. Arel even before Mr. Williams filed in No. 218- the Court declines to find that dismissal of either of the No. 235 claims is warranted. Mr. Williams's motion to dismiss the No. 235 Complaint and/or strike Count II is DENIED.
SO ORDERED.