Scott Garrett and Pamela Jane Garett v. Cook et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
DANIEL WILLIAM COOK and
YOLANDA T. COOK,
Debtors. 	No. 7-04-17704 SA
SCOTT GARRETT and
PAMELA JANE GARRETT, TRUSTEES
OF THE SCOTT GARRETT AND PAMELA
GARRETT FAMILY TRUST DATED JUNE 14, 1999,
Plaintiffs, 	Adv. No. 08-1074 S
v.
DANIEL WILLIAM COOK
Defendant.
MEMORANDUM OPINION ON PLAINTIFFS’
MOTION TO DISMISS DERIVATIVE CLAIMS
and ISSUE OF CONTINUING
APPLICABILITY OF N.R.S. § 41.520
This matter is before the Court on Plaintiffs’ Motion to
Dismiss Derivative Claims (“Motion”)(doc 57), and Defendants’
Objection thereto (doc 61). 	This is a core proceeding. 	28
U.S.C. § 157(b)(2)(I). 	Plaintiffs are represented by Hunt &
Davis, P.C. (Julie J. Vargas and Chris W. Pierce). 	Defendant is
self-represented.
The Motion states that Plaintiffs sent notice to all of the
minority shareholders of Hydroscope Group, Inc. notifying them of
Plaintiffs’ intent to dismiss the derivative claims raised in
this adversary proceeding and establishing a deadline for
objections or requests to substitute as the party plaintiff. 	No
Case 08-01074-nlj Doc 62 Filed 03/15/11 Entered 03/15/11 14:58:56 Page 1 of 5

1Count IV was already dismissed in doc 31.
Page -2-
objections or other responses were received. 	Plaintiffs wish to
dismiss the derivative claims set out as Counts IV 1, V, and VI.
In paragraph 3 of Defendant’s objection, Mr. Cook states
that Count IV has previously been dismissed, and that he does not
object to the dismissal of Counts V and VI if the Court would
allow for payment of fees. 	He also contends that even if Counts
V and VI are dismissed, Plaintiffs should be required to post
security under N.R.S. § 41.520 pursuant to an earlier decision of
this Court.
CONCLUSIONS
This motion to dismiss is governed by Federal Rules of Civil
Procedure 23.1(c) and 41(a)(2). 	Those rules state:
Rule 23.1. Derivative Actions
(c) Settlement, Dismissal, and Compromise. 	A
derivative action may be settled, voluntarily
dismissed, or compromised only with the court's
approval. 	Notice of a proposed settlement, voluntary
dismissal, or compromise must be given to shareholders
or members in the manner that the court orders.
and
Rule 41. Dismissal of Actions
(a) Voluntary Dismissal.
(1) By the Plaintiff.
...
(2) By Court Order; Effect. Except as provided in Rule
41(a)(1), an action may be dismissed at the plaintiff's
request only by court order, on terms that the court
considers proper. 	If a defendant has pleaded a
counterclaim before being served with the plaintiff's
motion to dismiss, the action may be dismissed over the
defendant's objection only if the counterclaim can
Case 08-01074-nlj Doc 62 Filed 03/15/11 Entered 03/15/11 14:58:56 Page 2 of 5

2The text of this statute appears as footnote 2 in doc 27.
Page -3-
remain pending for independent adjudication. 	Unless
the order states otherwise, a dismissal under this
paragraph (2) is without prejudice.
The Court finds that proper notice of the proposed dismissal
was given to the required parties.
The Court may dismiss the derivative claims at Plaintiff’s
requests on proper terms. 	Brown v. Baeke, 413 F.3d 1121, 1123
(10 th Cir. 2005). 	Absent legal prejudice to the defendant, the
court normally should grant such a dismissal. 	Id. (Citing
Ohlander v. Larson, 114 F.3d 1531, 1537 (10 th Cir. 1997), cert.
denied, 522 U.S. 1052 (1998)). 	Defendants raised one issue,
i.e., attorney fees.
In an earlier Memorandum Opinion, doc 27, the Court found
that because Counts IV, V and VI were derivative claims against
Defendants as directors of a Nevada corporation, N.R.S. § 41.520 2
was applicable. 	This statute allows the Court to fix an amount
that Plaintiffs would have to deposit as security to reimburse
the corporation and Defendants for fees and costs in the event
Plaintiffs did not prevail. 	Application of this statute is not
automatic, however, and a court must make certain findings set
forth in the statute before ordering security. 	Before having a
hearing on the N.R.S. § 41.520 issue, Plaintiffs announced their
intent to dismiss and the parties filed briefs regarding whether
Case 08-01074-nlj Doc 62 Filed 03/15/11 Entered 03/15/11 14:58:56 Page 3 of 5

Page -4-
the statute would apply even if Plaintiffs dismissed the
derivative claims.
The Court finds that the plain language of N.R.S. §
41.520(2) requires a plaintiff to post security only in actions
by shareholders to enforce secondary rights of a corporation
resulting from the corporation’s refusal to do so, or a
derivative action. 	The Court therefore also finds that if the
derivative claims are dismissed, N.R.S. § 41.520 has no further
application to this adversary.
In the United States, parties are ordinarily required
to bear their own attorney's fees-the prevailing party
is not entitled to collect from the loser. 	See Alyeska
Pipeline Service Co. v. Wilderness Society, 421 U.S.
240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). 	Under
this “American Rule,” we follow “a general practice of
not awarding fees to a prevailing party absent explicit
statutory authority.” 	Key Tronic Corp. v. United
States, 511 U.S. 809, 819, 114 S.Ct. 1960, 128 L.Ed.2d
797 (1994).
Buckhannon Board and Care Home, Inc. V. West Virginia Department
of Health and Human Resources, 532 U.S. 598, 602 (2001). 	In the
bankruptcy context, the only provision for allowing a debtor
attorney fees for defending against a dischargeability claim is
in 11 U.S.C. § 523(d), which provides:
(d) If a creditor requests a determination of
dischargeability of a consumer debt under subsection
(a)(2) of this section, and such debt is discharged,
the court shall grant judgment in favor of the debtor
for the costs of, and a reasonable attorney's fee for,
the proceeding if the court finds that the position of
the creditor was not substantially justified, except
that the court shall not award such costs and fees if
special circumstances would make the award unjust.
Case 08-01074-nlj Doc 62 Filed 03/15/11 Entered 03/15/11 14:58:56 Page 4 of 5

Page -5-
The debts in this case are business debts, not consumer debts.
Therefore the statute does not apply, and the default position is
that no attorney fee award is available.
Furthermore, an award of fees as a prerequisite to dismissal
is purely within a court’s discretion. 	Brown, 413 F.3d at 1123.
There is no allegation that Plaintiffs filed the derivative
claims in bad faith or without reasonable investigation. 	The
case has not progressed past discovery. 	No trial date is set.
The corporation involved has not yet entered its appearance or
filed any pleadings. 	The only activities apparent from a review
of the docket are those of Plaintiffs and Defendant. 	Therefore,
the Court finds that no fee award would be proper in this case.
The Court will enter an appropriate order and set a final
pretrial conference.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	March 15, 2011
Copies to:
Chris W Pierce
Hunt & Davis, P.C.
P.O. Box 30088
Albuquerque, NM 87190-0088
Julie J Vargas
PO Box 30088
Albuquerque, NM 87190-0088
Daniel William Cook
920 Galeras NW
Albuquerque, NM 87120
Case 08-01074-nlj Doc 62 Filed 03/15/11 Entered 03/15/11 14:58:56 Page 5 of 5