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Ally Financial, Inc. F/K/A Gmac Inc. v. Mente Chevrolet Oldsmobile

September 28, 2012


The opinion of the court was delivered by: Juan R. Sanchez, J.


In this action, Plaintiff Ally Financial Inc., f/k/a GMAC, Inc. (GMAC), brings breach of contract claims against Defendants Mente Chevrolet Oldsmobile, Inc. (Mente Chevrolet), Mente Chrysler Dodge, Inc. (Mente Chrysler), and these dealerships' principal, Donald M. Mente, as well as claims for declaratory judgment and injunctive relief. Specifically, GMAC asserts Mente Chevrolet and Mente Chrysler breached the Wholesale Security Agreement in failing to pay sums owed to GMAC "upon demand" (Count I), and Mente breached the Guaranty in failing to remit payment on behalf of the dealerships "upon demand" (Count II). The Mente Defendants ask this Court to dismiss the Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6) because the claims brought in Counts I and II have already been litigated and addressed by a jury in an earlier federal action and thus are precluded, and there are no independent causes of action for the claims asserted in Counts III and IV seeking equitable relief.*fn1 Defendants also seek immediate release of the sums allegedly owed to GMAC deposited in the Registry of the Court. Finally, Defendants seek sanctions against GMAC's counsel under 28 U.S.C. § 1927 and Local Civil Rule 83.6.1, and against GMAC and its counsel under Federal Rule of Civil Procedure 11.

For the reasons that follow, Defendants' motion to dismiss will be granted in its entirety, Defendants' motion for immediate release of funds will be granted, Defendants' motion for sanctions pursuant to § 1927 and Rule 83.6.1 will be granted, and Defendants' motion for sanctions pursuant to Rule 11 will be granted.


On November 19, 2009, a jury awarded the Mente Defendants $4 million in compensatory damages on their breach of contract claim brought against GMAC. Under the Wholesale Security Agreement (WSA), the master agreement that governed the wholesale financing relationship between GMAC and the Mente dealerships, the Mente Defendants were required to repay GMAC "faithfully and promptly" for all cars sold to customers. The meaning of that phrase was a central issue at the trial because it was not defined in the WSA and this Court determined it was ambiguous. The Mente Defendants argued, based on their prior course of dealing with GMAC, they were authorized to wait for their receipt of third-party funds before repaying GMAC. GMAC argued the phrase required immediate payment, to be transferred to GMAC the same day a vehicle was sold, and that if the Mente Defendants failed to remit payment "faithfully and promptly," GMAC could declare them in default or "out of trust."*fn2 The jury specifically found the dealerships were not out of trust for failing to make payments faithfully and promptly, and that GMAC breached the WSA in demanding immediate payment. Thereafter, this Court denied GMAC's renewed motion for judgment as a matter of law, Mente Chevrolet Oldsmobile, Inc. v. GMAC, 728 F. Supp. 2d 662 (E.D. Pa. 2010), and the Third Circuit Court of Appeals affirmed, Mente Chevrolet Oldsmobile, Inc. v. GMAC, 451 F. App'x 214 (3d Cir. 2011).

In this new breach of contract action, GMAC seeks to recover $1.1. million allegedly still owed to it from the Mente Defendants arising from the same contracts-chiefly, the WSA-and same underlying events. Specifically, GMAC alleges the Mente dealerships "breached their promise to repay GMAC upon demand." Compl. ¶ 34 (Count I). GMAC asserts the WSA allows GMAC, "in its discretion, to demand repayment of all amounts due from the Dealerships at any time." Emergency Mot. for TRO and Prelim. Inj. 4, ECF No. 4. GMAC states the three other claims in the Complaint "flow" from this breach of contract claim. Id. 6. Count II is a second breach of contract claim against Mr. Mente, individually, for breach of the Guaranty for "failing to remit payment to GMAC upon demand," Compl. ¶ 38, and Counts III and IV are claims for declaratory and injunctive relief, respectively. GMAC asserts it never previously sought recovery or "offset" of the alleged outstanding indebtedness upon which it has sued here.


To survive a motion to dismiss pursuant to Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In evaluating such a motion, a district court first should separate the legal and factual elements of the plaintiff's claims. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). The court "must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions." Id. at 210-11. The court must then "determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 211 (quoting Iqbal, 129 S. Ct. at 1950). A claim is facially plausible when the facts pleaded "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 570).

The Mente Defendants argue GMAC's Complaint should be dismissed based on the doctrine of claim preclusion because GMAC previously litigated the same claims against Defendants in the earlier federal court action and lost. Though an affirmative defense, claim preclusion may be raised in a Rule 12(b)(6) motion. Rycoline Prods., Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997). "Res judicata, also known as claim preclusion, bars a party from initiating a second suit against the same adversary based on the same 'cause of action' as the first suit." Duhaney v. Att'y Gen. of the U.S., 621 F.3d 340, 347 (3d Cir. 2010). The doctrine of claim preclusion is "central to the purpose for which civil courts have been established, the conclusive resolution of disputes." E.E.O.C. v. U.S. Steel Corp., 921 F.2d 489, 492 (3d Cir. 1990). To prevail on the defense of claim preclusion, a defendant must establish three elements: "(1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action." Duhaney, 621 F.3d at 347 (quoting In re Mullarkey, 536 F.3d 215, 225 (3d Cir. 2008)). Claim preclusion applies to all claims actually brought or which could have been brought in a prior action regardless of whether they were asserted or determined in the prior proceeding. See Inofast Mfg., Inc. v. Bardsley, 103 F. Supp. 2d 847, 849 (E.D. Pa. 2000) (emphasis added) (citing Brown v. Felsen, 442 U.S. 127, 131 (1979)); Donahue v. Gavin, No. 98-1602, 1999 WL 165700, at *2 (E.D. Pa. Mar. 12, 1999) ("Claim preclusion provides that when a court has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound 'not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.'" (citations omitted)). Thus, a party may not split a cause of action into separate grounds of recovery and raise the separate grounds in successive lawsuits; a party must raise in a single lawsuit all grounds of recovery arising from a single transaction or series of transactions that can be brought together. Mars Inc. v. Nippon Conlux Kabushiki--Kaisha, 58 F.3d 616, 619-20 (Fed. Cir. 1995) (analyzing principles of claim preclusion under Third Circuit law); Gregory v. Chehi, 843 F.2d 111, 117-18 (3d Cir. 1988); Tyler v. O'Neill, 52 F. Supp. 2d 471, 475 (E.D. Pa. 1999).

GMAC asserts Defendants' claim preclusion argument "is best suited for determination by a Rule 56 motion for summary judgment as opposed to a Rule 12(b)(6) motion to dismiss" because the Court must determine whether the Complaint fails to state a claim upon which relief can be granted based on the allegations in the Complaint alone and may not "consider[] any facts outside of the Complaint." Pl.'s Resp. to Mot. to Dismiss Pl.'s Compl. 3, ECF No. 26. Generally, a court is not permitted to consider matters beyond the pleadings on a Rule 12(b)(6) motion, although it may consider documents attached to or submitted with the complaint without converting the motion into one for summary judgment, or "documents whose contents are alleged in the complaint and whose authenticity no party questions, but which are not physically attached to the pleading." Pryor v. Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 560 (3d Cir. 2002); accord DiFronzo v. Chiovero, 406 F. App'x 605, 607 (3d Cir. 2011) (noting document integral to or specifically relied upon in complaint may be considered); see also Maio v. Aetna, Inc., 221 F.3d 472, 485 n.12 (3d Cir. 2000) (explaining court may consider statements made by counsel at oral argument to clarify allegations in complaint on review of dismissal for failure to state claim); Children's Seashore House v. Waldman, 197 F. 3d 654, 662 n.7 (3d Cir. 1999) (noting court can consider matters of public record on a motion to dismiss). The defense of claim preclusion may be raised and adjudicated in a 12(b)(6) motion and "the court can take notice of all facts necessary for the decision." Toscano v. Conn. Gen. Life Ins. Co., 288 F. App'x 36, 38 (3d Cir. 2008). "Specifically, a court may take judicial notice of the record from a previous court proceeding between the parties." Id. (citing Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 n.3 (3d Cir. 1988) (finding the district court was entitled to examine the record in the prior action and "take judicial notice of these matters" in rendering its decision on a Rule 12(b)(6) motion to dismiss)); see also Russo v. City of Philadelphia, 459 F. App'x 176 (3d Cir. 2012) (affirming district court's dismissal of action for failure to state a claim under Rule 12(b)(6) based on the doctrine of res judicata); Walsh v. Quinn, 359 F. App'x 273 (3d Cir. 2009) (same). Thus, this Court may consider the doctrine of claim preclusion at this stage of the litigation.

The first two elements of the doctrine are clearly satisfied here. A jury in the earlier federal action before this Court between these same parties awarded damages in favor of the Mente Defendants and against GMAC, and the Third Circuit affirmed that verdict. Hence, the plaintiff and defendants in this action are the same as the parties in the earlier action and there was a final judgment on the merits in the earlier action. See Tyler, 52 F. Supp. 2d at 475 (noting because earlier lawsuit between same parties was tried to verdict, elements of identical parties and a final judgment on the merits had been met). The only element at issue, therefore, is whether this action brought by GMAC against the Mente Defendants is based on the same cause of action as the earlier lawsuit.

Whether a lawsuit involves the same cause of action as an earlier suit depends not on the particular legal claims or legal theory asserted, but on the "essential similarity of the underlying events giving rise to the various legal claims." Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 963 (3d Cir. 1991) (quoting Davis v. U.S. Steel Supply, 688 F.2d 166, 171 (3d Cir. 1982) (en banc)) (emphasis added).*fn3 In making this determination, a court should focus on "whether the acts complained of were the same, whether the material facts alleged in each suit were the same, and whether the witnesses and documentation required to prove such allegations were the same." Id. (quoting United States v. Athlone Indus., Inc., 746 F.2d 977, 984 (3d Cir. 1984)). As set forth earlier, claim preclusion operates to bar "not only claims that were brought in the previous action, but also claims that could have been brought." Elkadrawy v. Vanguard Grp., Inc., 584 F.3d 169, 173 (3d Cir. 2009) (quoting Post v. Hartford Ins. Co., 501 F.3d 154, 169 (3d Cir. 2007)); Gregory, 843 F.2d at 116 (explaining claim preclusion prevents a party from re-litigating claims it might have but did not assert in the first action). Thus, the fact that a later-filed suit includes new allegations will not prevent preclusion where the allegations involve "fundamentally similar" issues and are alleged against the same parties as in the earlier action. See Elkadrawy, 584 F.3d at 173-74 ("The fact that several new and discrete . . . events are alleged does not compel a different result. A claim extinguished by res judicata 'includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction or series of connected transactions, out of which the action arose.'" (quoting Restatement (Second) of Judgments § 24(1) (1982) (emphasis omitted))). Applying these standards, it is clear that the material facts alleged in each suit are the same, the documents are the same, and the underlying events giving rise to GMAC's claims are the same and are therefore indisputably connected to those adjudicated in the earlier federal lawsuit.

Even so, GMAC argues the doctrine of res judicata does not apply where there is a splitting of claims. GMAC further argues it did not previously assert a claim raising the breach of the agreements it has sued upon in this lawsuit, or more specifically, the breach of the "upon demand" clause in the WSA, because it was "under no such obligation to pursue such claims" in that trial pursuant to Federal Rule of Civil Procedure 13(a)(2)(A) (relating to exceptions to compulsory counterclaims). Pl.'s Resp. to Mot. to Dismiss Pl.'s Compl. 2. "The requirement that counterclaims arising out of the same transaction or occurrence as the opposing party's claim 'shall' be stated in the pleadings was designed to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters." S. Constr. Co. v. Pickard, 371 U.S. 57, 60 (1962). "The Rule [i]s particularly directed against one who fail[s] to assert a counterclaim in one action and then institute[s] a second action in which that counterclaim bec[o]me[s] the basis of the complaint." Id. GMAC relies on an exception to this Rule which states that when an action is commenced, and the claim at issue is the subject of another pending action, the pleader need not state the claim in the second-filed action. Fed. R. Civ. P. 13(a)(2)(A). This exception is not mandatory, but merely provides the defendant with the option of continuing the prior action rather than asserting it as a counterclaim in the second action without fear of it being barred if the second action results in a judgment before the claim has been adjudicated in the first. 6 Fed. Prac. & Proc. § 1411 (3d ed.). However, "res judicata will not be defeated by minor differences of form, parties or allegations where the [ultimate and] controlling issues have been resolved in a prior proceeding in which the present parties had an opportunity to appear and assert their rights." Massullo v. Hamburg, Rubin, Mullin, Maxwell & Lupin, P.C., No. 98-116, 1999 WL 313830, at *5 (E.D. Pa. May 17, 1999) (internal citations and quotations omitted); see also Jett v. Beech Interplex, Inc., No. 02-9131, 2004 WL 1595734, at *3 (E.D. Pa. July 15, 2004).

In April 2008, GMAC filed an action in state court seeking $1.45 million against the Mente Defendants based upon Mente's breach of the same contracts, the WSA and the Mente Guaranty, for failure to make payment to GMAC. In May 2008, Mente filed its own state court proceeding against GMAC for breach of the WSA, which GMAC removed to this Court. That case became the federal action which proceeded to trial before this Court. After the jury award in that action, GMAC voluntarily dismissed its state court action without prejudice; this is the same claim that GMAC asserts now in the instant case. GMAC alleges Mente failed to consolidate the two state cases or seek dismissal of GMAC's state court case with prejudice. Accordingly, GMAC asserts Mente has consented to the splitting of the claims and, therefore, res judicata does not apply. Bradley v. Pitt. Bd. of Educ., 913 F. 2d 1064, 1072 (3d Cir. 1990) (explaining the rule against claim splitting is not applicable where the defendant consents or otherwise fails to "object to the splitting of the plaintiff's claim which is effective as an acquiescence in the splitting of the claim" (quoting Restatement (Second) of Judgments ยง 26(1)(a) comment a (1982))). However, at oral argument on this motion, the Mente Defendants represented to this Court that they in fact filed a counterclaim in GMAC's state court action, which GMAC successfully had struck and, therefore, the Mente Defendants had no choice but to institute a separate state action which became the lawsuit GMAC ...

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