Blue Bridge Financial, Inc. v. Morehead

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IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
HOT SPRINGS DIVISION
BLUE BRIDGE FINANCIAL, INC. 	PLAINTIFF
v. 	Civil No. 6:24-cv-06154
CHAD MOREHEAD 	DEFENDANT
REPORT AND RECOMMENDATION
Before the Court is a Motion to Dismiss Counterclaim filed by Plaintiff, Blue Bridge
Financial, Inc. (“Blue Bridge”). ECF No. 10. Defendant Chad Morehead (“Morehead”) filed a
Response in opposition to the motion. ECF No. 13. On January 2, 2025, the Honorable Susan O.
Hickey referred the motion to the undersigned. ECF No. 14.
I. 	BACKGROUND
On November 11, 2024, Blue Bridge filed a Complaint against Morehead based on a state
law claim of abuse of process. ECF No. 1. The jurisdiction in this case is based on diversity of
citizenship. According to the Complaint, Blue Bridge made two loans to Morehead’s wholly
owned company, CM Custom Siding, LLC (“LLC”) to enable the purchase of heavy equipment.
The LLC granted Blue Bridge a purchase money security interest in the equipment. Morehead
personally guaranteed the loans made to the LLC. Id.
In August of 2023, Morehead and his LLC began having difficulty making the loan
payments on time. After multiple defaults and multiple months of Morehead being unable to cure
the default in the loans, Blue Bridge accelerated the loans and filed a replevin action in state court
on December 27, 2023, seeking to repossess the collateral (“Replevin Action”). ECF No. 1, p. 2.
After the mailing of the Complaint for filing, Morehead made unscheduled payments on the loans
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which nearly brought them current had they not been accelerated. ECF No. 11. Considering the
payments, Blue Bridge paused any further action in the Replevin Action.
By February 2024, Morehead and the LLC were again in default. On February 20, 2024,
Blue Bridge filed an Amended Complaint in the Replevin Action and resumed litigation of the
Replevin Action. Morehead and the LLC hired an attorney and litigated the case. However,
Morehead and the LLC were unable to prevent the issuance of an Order of Delivery. ECF No. 11,
p. 2.
On April 5, 2024, Blue Bridge filed a Motion for Summary Judgment in the Replevin
Action. Attached to the Motion was the Affidavit of Amy Joy, an employee of Blue Bridge,
attesting to the defaulted status of the loans and the current amounts due and owing on the loans.
Morehead took issue with the Motion for Summary Judgment and contended the loans were not in
default. ECF No. 11, p. 2. However, rather than meet proof with proof or otherwise demonstrate
the existence of a genuine issue of material fact,1 Morehead began filing pro se lawsuits against
Blue Bridge, its employees, and its attorneys, and began sending to Plaintiff and its employees,
harassing, threatening and profane emails. Id.
Morehead filed the following five lawsuits, all in the Circuit Court of Hot Spring County:
 	Case No. 30CV-24-117 (seeking judgment against Wesley Newman, an
officer of Blue Bridge, in the amount of $450,000.00 for malicious
prosecution on the grounds Mr. Newman had allegedly wrongfully caused
Blue Bridge to initiate the Replevin Action because the loans were not in
default), later removed to this Court as Case No. 6:24-cv-06103-SOH and
dismissed by this Court;
 	Case No. 30CV-24-120 (seeking judgment against Blue Bridge in the
amount of $490,000.00 for malicious prosecution on the grounds Blue
Bridge should not have sought repossession of the collateral because “all
payments was made”), later removed to this Court as Case No. 6:24-cv-
06104-SOH and dismissed by this Court;
1 Morehead’s response to the Motion for Summary Judgment was both untimely and failed to include supporting
affidavits to evidence the allegations made therein as required by Ark. R. Civ. P. 56. ECF No. 11, p. 2.
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 	Case No. 30CV-24-146 (seeking judgment against Gary D. Jiles, attorney
for Blue Bridge in the Replevin Action, in the amount of $200,000.00 on
the grounds Mr. Jiles had engaged in malicious prosecution because
Morehead does not agree with the facts recited in an affidavit attached to
Blue Bridge’s Motion for Summary Judgment filed in the Replevin Action
by Mr. Jiles on behalf of his client), later dismissed by the Hot Spring
County Circuit Court;
 	Case No. 30CV-24-205 (seeking judgment against Amy Joy, in the amount
of $110,000.00 on the grounds the summary judgment affidavit signed by
her in the Replevin Action is false because he believes he was not in default
on the loans), later removed to this Court as Case No. 6:24-cv-06102-SOH
and dismissed by this Court; and
 	Case No. 30CV-24-217 (seeking judgment against Kate Peterson, a notary
public, for $110,000.00 on the grounds Ms. Petersen had notarized Ms.
Joy’s “false” affidavit), later removed to this Court as Case No. 6:24-cv-
06101-SOH and dismissed by this Court.
On November 21, 2024, the Saline County Circuit Court entered its Order Denying
Defendants’ Motion to Stay and Granting Plaintiff’s Motion for Summary Judgment (“Final
Order”). ECF No. 10, pp. 4-13. The Final Order resolved the Replevin Action in all respects by
granting Blue Bridge summary judgment on its claims against Morehead and the LLC and
dismissing all claims of Morehead and the LLC against Blue Bridge. To date, the Final Order has
not been appealed. ECF No. 11, pp. 3-4.
On August 16, 2024, Morehead was served with a letter and proposed motion seeking Rule
11 sanctions together with an accompanying brief in the Newman, Blue Bridge, Joy, and Petersen
Lawsuits. The motion and brief set out why the claims attempting to be asserted by Morehead in
his lawsuits were not cognizable, failed as a matter of law, and were frivolous. ECF No. 1, 4-5.
Even after being notified of the frivolity of the claims in his pro se lawsuits, Morehead filed another
case against Ms. Joy in Portsmouth County, Virginia, where Blue Bridge’s principal place of
business is located, containing the same allegations in the Joy Lawsuit. ECF No. 1, pp. 4-5.
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On December 11, 2024, Morehead filed his Answer to the Complaint filed by Blue Bridge.
ECF No. 9. The Answer included a Counterclaim against Blue Bridge.2 The gist of Morehead’s
counterclaim is that he believes Blue Bridge made false statements in pleadings filed in the
Replevin Action and offered an affidavit in support of a motion for summary judgment by a witness
which contained false statements. Morehead argues he was not in default on the loans. Id.
In response, Blue Bridge argues Morehead fails to state a claim upon which relief can be
granted because: 1) Morehead’s allegations are based on statements made in the Replevin Action,
these statements are privileged and therefore cannot be the basis for a collateral lawsuit against
Blue Bridge or witnesses in the Replevin Action; alternatively, 2) Morehead’s counterclaim is
barred by res judicata. ECF Nos. 10, 11.
II. 	LEGAL STANDARD
To survive a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P.
12(b)(6), “the complaint must include sufficient factual allegations to provide the grounds on
which the claim rests.” Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir. 2009) (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). The stated claim for relief must be “plausible
on its face.” Id. at 570. “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
While the Court must accept the factual allegations in the complaint as true and construe
them in favor of the plaintiff, the Court must not “presume the truth of legal conclusions couched
as factual allegations.” Id.; See also, Wiles v. Capitol Indemnity Corp., 280 F.3d 868, 870 (8th
2 Morehead titled this pleading as a “Motion to Dismiss with Incorporated Brief”. ECF No. 9. However, the Court
determined the pleading was not a motion to dismiss but instead an answer which included a counterclaim. On
February 12, 2025, the Court entered an order directing the Clerk to change the pleading to an Answer and
Counterclaim. ECF No. 18.
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Cir. 2002) (“[T]he court is free to ignore legal conclusions, unsupported conclusions,
unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations.”).
In short, 	“the pleading standard that Rule 8 announces does not require ‘detailed factual
allegations,’ but it demands more than an unadorned, the defendant-unlawfully-harmed-me
accusation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555).
Rule 12(b)(6) authorizes a court to dismiss a claim based on a dispositive issue of law.
Neitzke v. Williams, 490 U.S. 319, 326 (1989). If, as a matter of law, “it is clear that no relief could
be granted under any set of facts that could be proved consistent with the allegations,” a claim
must be dismissed, without regard to whether it is based on an outlandish legal theory or on a
close but ultimately unavailing one. Id. at 327 (quoting Hishon v. King & Spalding, 467 U.S. 69,
73 (1984). “[T]he court may consider the pleadings themselves, materials embraced by the
pleadings, exhibits attached to the pleadings and matters of public record.” Illig v. Union Elec.
Co., 652 F.3d 971, 976 (8th Cir. 2011) (quoting Mills v. City of Grand Forks, 614 F.3d 495, 498
(8th Cir. 2010)).
III. 	DISCUSSION
In a lawsuit based on diversity of citizenship, a federal court is required to look to
underlying state law to determine the res judicata or collateral estoppel effect of a prior judgment.
Hillary v. Trans World Airline, Inc., 123 F.3d 1041, 1043 (8th Cir. 1997) (citations and quotations
omitted). Under the doctrine of res judicata or claim preclusion,
A valid and final judgment rendered on the merits by a court of competent
jurisdiction bars another action by the plaintiff or his privies against the defendant
or his privies on the same claim. Res judicata bars not only the re-litigation of
claims which were actually litigated in the first suit, but also those which could
have been litigated. Where a case is based on the same events as the subject matter
of a previous lawsuit, res judicata will apply even if the subsequent lawsuit raises
new legal issues and seeks additional remedies.
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Barclay v. Waters, 357 Ark. 386, 394, 182 S.W.3d 91, 95-96 (2004). Res judicata bars relitigation
in a subsequent suit when: (1) the first suit resulted in a final judgment on the merits; (2) the first
suit was based upon proper jurisdiction; (3) the first suit was fully contested in good faith; (4) both
suits involve the same claim or cause of action; and (5) both suits involve the same parties or their
privies. Jayel Corp. v. Cochran, 366 Ark. 175, 234 S.W.3d 278, 281 (2006).
“Privity exists when two parties are so identified with one another that they represent the
same legal right.” Crockett v. C.A.G. Investments, Inc., 2011 Ark. 208, 381 S.W.3d 793, 799
(2011). “We have never required strict privity in the application of res judicata, but instead have
supported the idea that there must be a ‘substantial identity of parties to apply the doctrine.” Id.
(quoting Wells v. Heath, 269 Ark. 473, 602 S.W.2d 665 (1980)).
Under Arkansas law, the doctrine of collateral estoppel, or issue preclusion, bars
relitigation of the same issue in a subsequent suit where four elements are met: (1) the issue sought
to be precluded must be the same as that involved in the prior litigation; (2) the issue must have
been actually litigated; (3) the issue must have been determined by a final and valid judgment; and
(4) the determination must have been essential to the judgment. Hall v. Equity Nat. Life Ins. Co.,
730 F. Supp.2d 936 (E.D. Arkansas) citing Powell v. Lane, 375 Ark. 178, 184, 289 S.W.3d 440,
444 (2008).
Here, Morehead’s counterclaim is barred by res judicata. The Replevin Action – based on
the loans made by Blue Bridge to Morehead and the LLC and the subsequent default on those
loans - proceeded to final judgment in favor of Blue Ridge by a court with proper jurisdiction. ECF
No. 10, pp. 4-13. The instant counterclaim involves the same parties – Blue Bridge, Morehead and
LLC – as the Replevin Action. Without question, the Replevin Action was fully litigated as
evidenced by the Final Order denying Morehead and the LLC’s motion to stay and granting Blue
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Bridge’s motion for summary judgment. Id. Morehead was represented by counsel in the Replevin
Action, a hearing was conducted, and subsequently the Circuit Court of Saline County, Arkansas
granted summary judgment in favor of Blue Bridge. Finally, both the Replevin Action and the
instant lawsuit involve the same issue which was material to the final judgment in the state court
judgment – i. e., whether Morehead and the LLC were in default on the loans. Accordingly, res
judicata bars Morehead from asserting his counterclaim in the instant lawsuit.
IV. 	CONCLUSION AND RECOMMENDATION
For the reasons set out above, I recommend Blue Bridge’s Motion to Dismiss Counterclaim
(ECF No. 10) be GRANTED and Morehead’s counterclaim, set forth in ECF No. 9, be dismissed
with prejudice.
The parties have fourteen (14) days from receipt of the Report and Recommendation
in which to file written objections pursuant to 28 U.S.C. § 636(b)(1). The failure to file timely
objections may result in waiver of the right to appeal questions of fact. 	The parties are
reminded that objections must be both timely and specific to trigger de novo review by the
district court.
IT IS SO RECOMMENDED this 26th day of February 2025.
/s/ Barry A. Bryant
HON. BARRY A. BRYANT
UNITED STATES MAGISTRATE JUDGE
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