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Carruth v. Bentley

United States District Court, N.D. Alabama, Western Division

April 27, 2018

JOHN DEE CARRUTH, Plaintiff,
v.
ROBERT J. BENTLEY and DAVID BYRNE Defendants.

          MEMORANDUM OF OPINION

          L. Scott Cogwler United States District Judge

         Before the Court is the Motion to Dismiss (doc. 5) and Motion under Rule 41(d) (doc. 6) filed by Defendants, former Governor of Alabama Robert J. Bentley (“Bentley”) and former legal advisor to the governor David Byrne (“Byrne”) (collectively “Defendants”). In their Motion to Dismiss, Defendants argue that the Complaint filed by Plaintiff John Dee Carruth (“Carruth”) is due to be dismissed because it violates the Court's Scheduling Order in the action Carruth v. Smyth, 7:15-1098-LSC (N.D. Ala.), and because the Complaint fails to state a claim upon which relief can be granted. In their Motion under Rule 41(d), Defendants argue they are entitled to recover costs and attorneys' fees incurred in Carruth v. Smyth defending against the same claims asserted against them in this action.

         Carruth has responded to both Motions. He argues the Motion to Dismiss is due to be denied as the maintaining of this action after the prior voluntary dismissal of his claims against Defendants in Carruth v. Smyth does not violate the Court's Scheduling Order. He likewise disputes Defendants' arguments that he has failed to state a claim. In regards to Defendants' Motion under Rule 41(d), Carruth argues that Defendants' reading of Rule 41 misinterprets the plain language of the Rule; in any case, according to Carruth, the facts of this case do not support an award of costs or attorneys' fees.

         For the reasons that follow, Defendants' Motion to Dismiss is due to be GRANTED; Defendants' Motion under Rule 41(d) is due to be GRANTED in PART and DENIED in PART.

         I. Facts[1]

         Alabama One Credit Union (“Alabama One”) is a member owned, not-for-profit, federally insured credit union chartered by the State of Alabama in 1951. Alabama Credit Union Administration (“ACUA”) is a state agency responsible for chartering, regulating, and supervising Alabama's state-chartered credit unions. The ACUA Administrator is responsible for leading the ACUA on a day-to-day basis. Larry Morgan (“Morgan”) was the ACUA Administrator from February 2011 to March 24, 2014. Among other responsibilities, the ACUA regularly examines each Alabama credit union, which involves the ACUA reviewing financial and administrative records of such credit union to ensure the safety and soundness of its operations. The ACUA also works collaboratively with the National Credit Union Administration (“NCUA”), the federal agency that regulates credit unions. Based on its findings, the ACUA has the authority to issue Memoranda of Understanding (“MOUs”), Letters of Understanding and Agreement (“LUAs”), Cease and Desist Orders (“C&Ds”), and Conservatorship Orders.

         Carruth became the CEO of Alabama One in May 1997. During Carruth's eighteen-year tenure as CEO, Alabama One experienced significant growth. However, Carruth's time as CEO ended on August 27, 2015, when the ACUA issued an Order of Conservatorship over Alabama One; took possession and control of Alabama One's business and assets; and the acting Administrator terminated Carruth's employment.

         A. The Alleged Conspiracy

         On December 6, 2011, the NCUA and ACUA issued a joint LUA against Alabama One. The LUA required Alabama One to hire an outside law firm to investigate Carruth's employment contract and Alabama One's loans to senior management and their relatives. Under the LUA, Alabama One hired an outside accounting firm to perform a fraud audit, loan accounts verification, and internal control review. Alabama One complied with all aspects of the December 2011 LUA and the LUA was then lifted. Neither the law firm nor the accounting firm found evidence of fraud on Carruth's part.

         In the summer of 2013, attorney Justice D. “Jay” Smyth, III (“Smyth”) filed several lawsuits on behalf of various clients against Alabama One and Carruth related to loans made to Alabama One member Danny Butler (“Butler”). Carruth and Alabama One responded to these lawsuits by defending themselves and refusing to settle the claims. Smyth then attempted to pressure Alabama One and Carruth to settle these suits by contacting his former law partner Byrne, who was then serving as chief legal advisor to Governor Bentley. He also reached out to Alabama state senator Gerald Allen (“Allen”). Smyth asked these politically powerful individuals to help him pressure Alabama One into a settlement with Smyth's clients. On November 18, 2013, Smyth emailed Allen, referencing a meeting in Montgomery about Alabama One, stating that “conditions at Alabama One have only deteriorated since the earlier investigation conducted by ACUA, ” and “express[ing] his desire for the Governor to direct the ACUA to pick up where it left off in 2009 with respect to Alabama One.” (Doc. 1 ¶ 72 (internal quotations omitted).) Smyth, Byrne, Bentley and Allen met on November 25, 2013 to “‘speak freely' about ‘Alabama One Issues' and . . . to confer and decide ‘what actions would seem to be most . . . appropriate for the State of Alabama.'” (Id. ¶ 65.) On January 24, 2014, Smyth, Byrne, Morgan, Williams, NCUA examiners, ACUA examiners, and a former Alabama One employee Lori Baird (“Baird”) met in Montgomery. At this meeting, Smyth and Baird presented “inside information to the attendees about wrongdoings on the part of Alabama One.” (Id. ¶ 68 (internal quotations omitted).)

         Next, on February 4, 2014, Smyth sent an email to Senator Allen, copying Byrne and an ACUA board member, which stated that Alabama One “has become so impaired that the only responsible action would be for the [ACUA] to take prompt remedial action against Alabama One.” (Id. ¶ 74.) This email specifically requested that Alabama One be conserved and some of its employees suspended. He sent another email to Byrne and Allen about Alabama One on February 12, 2014. When Byrne's executive assistant acknowledged receipt of this email, Smyth responded by saying “I believe now that everyone (perhaps with the notable exception of Larry Morgan) is on the same page re Alabama One issues. I have confidence that the Governor will act decisively on this.” (Id. ¶ 77 (emphasis and italicization omitted).)

         On February 13, Smyth emailed Byrne, Allen, Williams, and others, stating that the plaintiffs in his suits against Alabama One “continue to hope for prompt and effective remedial action against Alabama One by the ACUA acting in concert and coordination with the Governor's office . . . the results from the courthouse will not materialize soon enough to save them.” (Id. ¶ 78.) He sent another email on February 22, this time copying NCUA Problem Case Officer Kim Brown, Byrne, Allen, an Assistant United States Attorney, and an FBI agent. Among other statements, the email said that Smyth “underst[ood] that the Governor and his lawyers conferred with ACUA Director Larry Morgan about the gravity of these problems, ” but that he was “gravely concerned about the pace of urgently needed remedial action.” (Id. ¶ 79.) He also made a statement about how Morgan should be made to “realize that his action (or his inaction) is receiving scrutiny from a whole range of different people.” (Id.) He sent another email on February 24, this time asking Byrne, Allen, and others to “stay further proceedings” in one of his lawsuits against Alabama One. (Id. ¶ 80.)

         B. Carruth is suspended

         On February 27, during a deposition in one of his lawsuits against Alabama One, Smyth threatened Alabama One's attorney, saying “[i]f you don't settle our lawsuits today and pay us money today, the regulators will do bad things to Alabama One tomorrow.” (Id. ¶ 86.) The next day, the ACUA suspended Carruth and three other Alabama One employees. At this time, there were no ACUA or NCUA sanctions pending against Alabama One or any of its employees. Smyth responded to this news by sending Byrne an email thanking him for his involvement with Alabama One.

         On March 3, 2014, Carruth and the other suspended Alabama One employees filed an action in the Circuit Court of Montgomery County against Morgan and the ACUA, seeking to have the suspensions voided. Over the next few days, Smyth sent various emails to politically powerful individuals, advocating that Alabama One be conserved. Meanwhile, the ACUA reached an agreement with the employees and they returned to work without limitation or restriction. However, in order to return to work, the ACUA required the employees to sign an agreement that contained a liability release. They did so on March 21, 2014.

         The business day after Carruth and the other employees were reinstated, Morgan resigned from his position as Administrator of the ACUA. Morgan admitted that at the time he resigned from his position, the ACUA had found nothing to justify the imposition of any regulatory sanctions against Alabama One or any of its employees.

         C. Regulatory action under Moore

         Following Morgan's resignation, Byrne contacted Sarah Moore (“Moore”) as Morgan's successor as Administrator of the ACUA. According to Carruth, Byrne specifically discussed Alabama One with Moore and characterized Alabama One as a “large problem” that she was going to have to deal with. Bentley appointed Moore as Morgan's successor on April 15, 2014, and she took office on July 1, 2014.

         A few days after becoming Administrator, Moore informed Carruth that she was going to direct another examination of Alabama One by a third party. She hired the auditing firm Carr Riggs to perform the examination, which took place over the course of four weeks in August 2014. Prior to the completion of the examination, the ACUA and NCUA issued a Preliminary Warning Letter (“PWL”) directing Alabama One to stop making Member Business Loans (“MBLs”). The PWL also sanctioned Alabama One for entering into a settlement in one of Smyth's lawsuits against Alabama One. At the conclusion of the examination, the ACUA and NCUA imposed another LUA on Alabama One.

         Smyth emailed, called, and texted Moore numerous times following her hiring as Administrator of the ACUA regarding Alabama One. In a series of text messages dated September 17, 2014, Smyth told Moore that he had communicated with Byrne about Alabama One and informed Moore that Smyth was a former law partner of Byrne.

         In April 2015, the ACUA issued a C&D against Alabama One. This order required Alabama One to engage additional outside sources to review its loans and its management. It also informed Alabama One that the next regulatory step would be to place the credit union into conservatorship. On April 24, 2015, the ACUA published the C&D on its website and conveyed it to the news media.

         Finally, on August 27, 2015, the Board of the ACUA, which consists of the Administrator and seven other credit union executives appointed by the Governor, met for an executive session. ACUA and NCUA officials made presentations to the ACUA Board on Alabama One, recommending that Alabama One be placed into conservatorship and advising Moore as to which Alabama One employees should be terminated. The meeting culminated with the ACUA Board voting to conserve Alabama One. In the Order of Conservatorship, the ACUA appointed itself as conservator and then delegated all power and authority of the conservator to Moore. Moore then terminated Carruth's employment on the same day.

         II. Standard of Review

         To survive a 12(b)(6) motion to dismiss, a plaintiff must generally satisfy the pleading requirements in Fed.R.Civ.P. 8. Rule 8 requires a pleading to contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678-679 (2009). Instead, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face.” Id. at 678 (internal quotations omitted). Iqbal establishes a two-step process for evaluating a complaint. First, the Court must “begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.” Id. at 679. Second, “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. Factual allegations in a complaint need not be detailed, but they “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         A party need not specifically plead each element in his or her cause of action, but the pleading must contain “enough information regarding the material elements of a cause of action to support recovery under some viable legal theory.” Am. Fed'n of Labor & Cong. of Indus. Orgs. v. City of Miami, 637 F.3d 1178, 1186 (11th Cir. 2011). Ultimately, the Court must be able to draw a reasonable inference from the facts that the other party is liable. Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1215 (11th Cir. 2012). The Court must construe pleadings broadly and resolve inferences in the non-moving party's favor. Levine v. World Fin. Network Nat'l Bank, 437 F.3d 1118, 1120 (11th Cir. 2006).

         III. Motion to Dismiss

         The Court first addresses the arguments Defendants advance in favor of dismissal of Carruth's Complaint under Rule 41(b), before considering their challenges to the sufficiency of Carruth's allegations under Rule 12(b)(6).

         A. Rule 41(b)

         Defendants argue that this action should be dismissed under Rule 41(b) for failure to comply with this Court's Scheduling Order in Carruth v. Smyth (the “Smyth Lawsuit Scheduling Order.”) Under Federal Rule of Civil Procedure 41(b), a Court may dismiss an action where “the plaintiff fails to prosecute or to comply with [the Federal Rules of Civil Procedure] or a court order. . . .” The Smyth Lawsuit Scheduling Order was entered on February 4, 2016, and provides that no new parties may be added by Carruth after March 3, 2016 to Carruth v. Smyth. See Scheduling Order, Carruth v. Smyth, 7:15-cv-1089-LSC (N.D. Ala. Feb. 4, 2016). Defendants argue that Carruth has violated the Smyth Lawsuit Scheduling Order by first dismissing Byrne and Bentley from Carruth v. Smyth on January 30, 2016, later re-suing Byrne and Bentley in this action, and finally attempting to consolidate the two actions. By the time Carruth began the present action, the deadline for adding parties as set out in the Smyth Lawsuit Scheduling Order had passed. Compare Doc. 1 (filed on August 25, 2017) with Motion to Consolidate Cases, Carruth v. Smyth, 7:15-cv-1089-LSC (N.D. Ala. Oct. 25, 2017). Defendants argue that Carruth's voluntary dismissal and later refiling works as a de facto run around of the Carruth v. Smyth Scheduling Order, and that such conduct should lead to the dismissal of this action.

         Rule 41(b)'s wording is general in allowing a defendant to move for dismissal of an action or a claim where the plaintiff fails to comply with a court order or rule. In regards to Rule 41(b), the Eleventh Circuit has stated that: “dismissal with prejudice is plainly improper unless and until the district court finds a clear record of delay or willful conduct and that lesser sanctions are inadequate to correct such conduct.” Betty K Agencies, Ltd. v. M/V MONADA, 432 F.3d 1333, 1339 (11th Cir. 2005). As it is the most extreme sanction imposed on a party, dismissal with prejudice under Rule 41(b) “is to be used only in extreme circumstances.” Boazman v. Econ. Lab., Inc., 537 F.2d 210, 212 (5th Cir. 1976) (emphasis added). Courts generally avoid using this most grave sanction as “[i]n the past, [Eleventh Circuit precedent] have found that lesser sanctions would suffice in all but the most flagrant circumstances.” Id.

         Defendants rely on two unpublished opinions' interpretation of Rule 41(b) for their argument that this action is subject to dismissal for the way that Carruth dismissed Defendants from Carruth v. Smyth, and then later re-sued Defendants in this action. The first cited by Defendants, Bateman Harden PA v. Francis, differs from this action because it largely turned on the defendant's waiver for failure to bring a compulsory counterclaim under Fed.R.Civ.P. 13(a)(1). 2012 WL 3689402 (N.D. Fla. Aug. 27, 2012). In Bateman Harden, the plaintiff, an attorney, filed suit in federal court against his former client for recovery of attorney's fees from the plaintiff's prior representation of the defendant (the “fee action”). The defendant answered, but did not assert any counterclaims. One year later, the defendant filed suit in state court, asserting malpractice and tort claims against his former attorney arising out of the same dispute that was still pending in federal court (the “malpractice action”). The state court determined that the malpractice action arose out of the same transaction and occurrence as the fee action and transferred the action to the Northern District of Florida for consolidation. Bateman Harden determined that the defendant had waived his counterclaims by not bringing them in the fee action within the time for amending pleadings, regardless of whether the defendant-client later brought the malpractice action in state court. Id., at *4.

         Bateman Harden does not inform the parties' dispute here, because the operative core of that action turned upon the defendant's failure to bring a compulsory counterclaim. This action does not involve compulsory counterclaims. Although in Bateman Harden there is an admitted similarity to Carruth's conduct in the way the defendant attempted to “make an end run around” the deadline for amendment under that court's scheduling order, the basis for the dismissal of the defendant's counterclaims involved no pertinent analysis. Bateman Harden made no finding that there was a clear record of delay or willful conduct or a discussion of whether lesser sanctions were inadequate to correct such conduct. The more ministerial application of Rule 13 does not inform the application of Rule 41(b) as to Carruth's claims.

         Defendants alternatively point to the reasoning in Jordan v. City of Taylor to advance their Rule 41(b) argument. 2015 WL 4724900 (E.D. Mich. Aug. 10, 2015). City of Taylor is at a glance supportive of dismissal. In City of Taylor, the plaintiff was an inmate who was found alive but comatose and incapacitated in the defendants' correctional facility. The plaintiff's conservator later brought suit against various local entities and officials for deliberate indifference to a medical need under 28 U.S.C. § 1983. Some months later, after the deadline to amend his complaint had already passed, plaintiff sought leave to amend his complaint to add certain officers he believed to be liable under § 1983. The court denied that motion, noting that the plaintiff had known the identity and involvement of those officers before bringing his suit. Undeterred, the plaintiff sued those officers in a separate federal action, and then sought to consolidate the two actions. City of Taylor denied the motion to consolidate and dismissed the newly filed action under Rule 41(b) for the plaintiff's litigation misconduct, because “it is inescapable that Plaintiff's filing of the second Complaint was a blatant attempt to evade a Court Order and a clear abuse of the litigation process.” Id., at *2.

         Carruth's attempt to consolidate Carruth v. Smyth with this action was certainly misguided, but it was not made in such blatant disregard of the Court's prior rulings that Carruth's behavior should subject this action to dismissal under Rule 41(b). Carruth obviously did not abuse the litigation process by re-filing this action against the Defendants who had previously been dismissed without prejudice from Carruth v. Smyth. Although Defendants argue they “relied” on Carruth's voluntary dismissal-apparently assuming that Carruth would not seek to later re-file his claims against Byrne and Bentley-Defendants do not explain how this reliance is reasonable. So while Defendants did not take part in certain depositions of parties occurring in the Carruth v. Smyth action, they had ample information before them to determine that Carruth could still file a separate suit within the applicable statute of limitations.

         This action is similar to City of Taylor in that Carruth attempted to consolidate his later-filed case with Carruth v. Smyth. But the Court had not specifically ordered that Carruth could not add Bentley and Byrne to the Carruth v. Smyth action, as the court in City of Taylor had done. The willful disregard of a Court order is not present-conceptually, a lower mens rea culpability such as negligence would better describe Carruth's conduct. To the extent Defendants' Motion to Dismiss is premised upon Carruth's attempt to consolidate this action with Carruth v. Smyth, it is denied.

         B. Rule 12(b)(6)

         In addition to Rule 41(b), Defendants also assert that Carruth's Complaint is due to be dismissed in its entirety under Federal Rule of Civil Procedure 12(b)(6) because its allegations are insufficient to state a claim. The Court first considers Defendants' claims of absolute ...


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