The court should grant defendant’s motion and dismiss both counts with prejudice and without leave to amend. Claim preclusion bars the claims by both parties.
FRCP 12(b)(6) Standard
A motion to dismiss for failure to state a claim tests the legal and factual sufficiency of a pleading stating a claim for relief. FRCP 12(b)(6). A claim is legally insufficient when the plaintiff asserts a legal right that does not exist on the facts pleaded. A claim is factually insufficient when the plaintiff fails to plead sufficient facts to show entitlement to relief.
The court looks at the four corners of the complaint. FRCP 12(d). The “four corners” includes three things. The court looks at the allegations in the complaint. It can view written instruments and documents attached to the pleading, which are treated as part of the pleading for all purposes. FRCP 10(c). And the court can take judicial notice of facts established in public records such as those of judicial proceedings, whose reliability cannot reasonably be questioned. If on a 12(b)(6) motion material not contained within (or treated as within) the four corners is presented to and not excluded by the court, the court must convert the motion to one for summary judgment. FRCP 12(d).
The court takes all nonconclusory allegations in the complaint as true and draws all reasonable inferences in favor of the plaintiff. Vullo.
Resolving as 12(b)(6)
The claim preclusion defense relies on facts contained in the pleadings, declarations, and court decisions in Combs v. TEA (Tex. 2011), a decision of the Texas Supreme Court. The court may take judicial notice of these facts, as they appear in the records of judicial proceedings, thus their reliability cannot reasonably be questioned. Along with the facts pleaded in the Complaint, the facts established in the prior litigation are part of the complaint and can be considered on a 12(b)(6) motion.
Claim Preclusion
Claim preclusion (at common law res judicata) prevents parties from litigating claims for relief that were or could have been litigated in a prior suit.
Claim preclusion requires that: 1) the prior litigation produced a final judgment on the merits; 2) the same parties or those in privity are involved in both actions; 3) the claims in the current action were brought or could have been brought in the prior action; and 4) the claims in the current action are part of the same cause of action as in the prior action. For the final prong, courts apply the “transactional approach,” under which parties cannot bring new claims arising from the same transaction or occurrence, meaning the same set of underlying historical facts or events. Courts apply the “logical relationship” test, looking to whether the essential facts of the claims in the second action are so logically connected to the claims in the prior action that considerations of judicial economy dictate that they be litigated together. Jones (2d Cir.).
Plaintiff concedes all but the second element of preclusion. As to the same-party prong, they argue that neither Airport nor Arabian was a party to Combs, which involved the Texas Entertainment Association (“TEA”). Thus, they argue, neither can be bound by the judgment. (Opposition).
Claim preclusion extends to situations in which the parties to the second action are in privity with the parties to first action. Privity exists when the parties to the first action expressly represents and protects the interests of non-parties who become parties in the second action. Privity treats the party to the second action as if it were party to that action. A non-party sharing “similar interests” in establishing defendant’s liability is not sufficient to bind a non-party to another party’s action. But a party in a representative capacity can bind a non-party. (Glannon)
Arabian
Arabian is a member of the TEA. (Compl. ¶ 6). The TEA is a trade association for the adult entertainment industry, representing the legal, business, and economic interests of its members. (Compl. ¶ 2; Motion ¶ 1). TEA litigated Combs on behalf of its members, to protect those legal interests. Arabian is one of those members and thus one of those on whose behalf TEA litigaion. Arabian was in privity with TEA, therefore it is as if it were party to Combs and it is bound by that judgment.
Airport
The analysis is more complicated as to Airport, which is not a member of the TEA. (Compl. ¶ 3). Nevertheless, Airport maintains substantial connections to TEA and its members, such that TEA can be said to have represented Airport’s interests in the first action. Claim preclusion therefore applies to its claims.
The TEA consists of forty adult cabaret establishments (Motion ¶ 2). Six of TEA’s member establishments, including Arabian, are part of the Bucks Wild chain of adult nightclubs. (Motion ¶ 3). Those clubs are in privity with TEA and TEA represented the interests of those six clubs in Combs. As the seventh Bucks Wild club (Compl. ¶ 1), Airport’s interests were represented their the other clubs in the chain through TEA.
Curtis Wise is the sole owner, member, and operator of Airport. Wise also maintains an ownership interest the six other Bucks Wild Clubs. (Compl. ¶ 4). Although not a party to Combs, Wise’s interests were protected—TEA represented the interests of the six clubs Wise owns and thus the interests of Wise. Because Wise is the sole owner and operator of Airport, by representing Wise’s interests TEA also represented Airport’s interests.
Terms of Dismissal
In granting a motion to dismiss, a court can dismiss without prejudice (meaning with leave to amend) or with prejudice (meaning without leave to amend). Leave to amend allows the pleader an opportunity to correct the defects in the pleading. A court dismisses without leave to amend when the pleader cannot correct the defects, such as when the claim is legally insufficient.
The court should dismiss both plaintiffs’ claims with prejudice and without leave to amend. Airport and Arabian’s claims are barred by claim preclusion because TEA represented the interests of both parties in the prior action. Nothing either plaintiff could do in a new pleading can change that fact.
