United States District Court, N.D. Alabama, Western Division
MEMORANDUM OF OPINION
Scott Cogwler United States District Judge
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
“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
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.
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.
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.
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.
The Alleged Conspiracy
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.
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
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).)
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.)
Carruth is suspended
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
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.
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.
Regulatory action under Moore
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.
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.
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.
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.
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.
Standard of Review
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).
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.
Motion to Dismiss
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).
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.
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.
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.
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.
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.
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.
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.
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