United States District Court, D. Minnesota
A. Benson, BRIOL & ASSOCIATES, for plaintiff.
Christopher J. Harristhal and John A. Kvinge, LARKIN HOFFMAN
DALY & LINDGREN, LTD., for defendant.
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S
MOTION TO DISMISS
R. TUNHEIM CHIEF JUDGE
Recycling Centers of America, Inc. (“ARCA”),
brings this diversity action against its former consulting
firm, Protiviti, Inc., for negligence and breach of contract
relating to Protiviti's alleged failure to identify gaps
in ARCA's accounting methods that allegedly caused ARCA
to fail to pay $4.6 million in California sales tax.
Protiviti moves to dismiss the entire action as barred by a
state-court judgment in a related shareholder-derivative
action involving ARCA. Because the plain language of the
state-court judgment bars this action, the Court will grant
Protiviti's motion. But because it is possible that ARCA
could obtain an amended judgment or relief from the
state-court judgment, the Court will dismiss this action
a diversity action alleging several business torts.
(See Not. of Removal ¶ 2, Ex. A
(“Compl.”), Mar. 13, 2018, Docket No. 1.) In
2012, ARCA and Protiviti entered into a consulting agreement.
(Compl. ¶ 7, Ex. A.) Pursuant to that agreement,
Protiviti provided consulting services to ARCA in 2012 and
2013 to help ARCA improve its “operating effectiveness
of [ARCA's] system of internal controls over financial
reporting in response to the requirements of Section 404 of
the Sarbanes-Oxley Act.” (Id. ¶ 7, Ex. A
at 8, 11, 14.) ARCA alleges that it “retained Protiviti
specifically to identify gaps in ARCA's accounting
controls, including in the area of tax.” (Id.
2014, the State of California began an audit of ARCA for
unpaid sales tax from 2011-2013. (Id. ¶ 12.)
Ultimately, California hit ARCA with an unpaidtaxes bill for
over $4.6 million. (Id. ¶ 20.) In 2015, a
shareholder-derivative action was filed in Minnesota state
court against ARCA's directors and officers, alleging
breach of fiduciary duties and unjust enrichment for
ARCA's failure to pay California sales tax. (Decl. of
John A. Kvinge (“Kvinge Decl.”) ¶ 4, Ex. C,
Mar. 20, 2018, Docket No. 8.) ARCA was a nominal defendant in
that action. (Id.)
2015 shareholder-derivative action settled. The parties
there, including ARCA, entered into a “Stipulation and
Agreement of Settlement, ” (id. ¶ 6, Ex.
E (“Stipulation”)), and the state court entered
final judgment, (id. ¶ 9, Ex. H). The
state-court judgment provides:
4. The Action, all claims contained therein, and any other
Released Claims, are hereby ordered as fully, finally, and
forever compromised, settled, released, discharged and
dismissed on the merits and with prejudice by virtue of the
proceedings herein and this Judgment .....
5. Upon the Effective Date, ARCA . . . shall be deemed to
have, and by operation of this Judgment shall have, fully,
finally, and forever released, relinquished, and discharged
all Released Claims (including Unknown Claims) against the
Released Persons and any and all claims arising out of,
relating to, or in connection with the defense, settlement or
resolution of the Action against the Released Persons. ARCA .
. . shall be deemed to have, and by operation of this
Judgment shall have, covenanted not to sue any Released
Person with respect to any Released Claims, and shall be
permanently barred and enjoined from instituting, commencing
or prosecuting the Released Claims against the Released
Persons. . . .
(Id. ¶ 9, Ex. H at ¶¶ 4-5.) The final
judgment “incorporates by reference the definitions in
the Stipulation.” (Id. ¶ 9, Ex. H at
Stipulation defines “Released Claims” in §
1.17 to mean
any and all manner of claims . . . brought or that could be
brought derivatively or otherwise by or on behalf of ARCA
against any of the Released Persons, which . . . are based
upon, arise out of, relate in any way to, or involve . . .
any of the actions, transactions, occurrences, . . . or any
other matters, . . . that are, were, could have been, or in
the future can or might be alleged, asserted . . . or
referred to in the Action.
(Id. ¶ 6, Ex. E at 10-11.) The Stipulation
defines “Released Person(s)” to mean
“collectively, each and all of the Defendants and their
Related Persons.” (Id. at 12.) The Stipulation
defines “Defendants” to mean “collectively,
the Individual Defendants and nominal defendant ARCA.”
(Id. at 7.) And the Stipulation defines
“Related Persons” to mean “each and all of
a Person's past, present, or future . . . consultants . .
. [or] advisors.” (Id. at 10.) ARCA's
outside auditing firm of Baker, ...