Bank of N.Y. Mellon v. Georg

• Decision Date: 18 December 2017
• Docket Number: No. 20, Sept. Term, 2017,20, Sept. Term, 2017
• Parties: The BANK OF NEW YORK MELLON, Trustee, et al. v. Heinz Otto GEORG, et al.
• Court: Court of Special Appeals of Maryland

456 Md. 616

175 A.3d 720

The BANK OF NEW YORK MELLON, Trustee, et al.

v.Heinz Otto GEORG, et al.

No. 20, Sept. Term, 2017

Court of Appeals of Maryland.

December 18, 2017

Argued by Ira L. Oring (M. Elizabeth Nowinski, Fedder and Garten Professional Association of Baltimore, MD) on brief, for Petitioners.

Argued by Gregory T. Lawrence (Daniel J. McCartin and Michael J. Silvestri, Conti Fenn & Lawrence LLC of Baltimore, MD) on brief, for Respondents.

ARGUED BEFORE: Barbera, C.J., Greene, Adkins, McDonald, Watts, Hotten, Getty, JJ.

Watts, J.

This case is, as the parties themselves acknowledge, a unique, fact-specific case involving issues of judicial estoppel, and, specifically, whether a party's arguments as to standing and privity constitute inconsistent legal positions, and a determination of what constitutes a final judgment for purposes of res judicata and collateral estoppel. To set the legal stage for the case, we briefly describe the principle of judicial estoppel and the doctrines of res judicata and collateral estoppel.

Judicial estoppel has been defined as "a principle that precludes a party from taking a position in a subsequent action [that is] inconsistent with a position taken by him or her in a previous action." Dashiell v. Meeks, 396 Md. 149, 170, 913 A.2d 10, 22 (2006) (citation and internal quotation marks omitted). "[J]udicial estoppel applies when it becomes necessary to protect the integrity of the judicial system from one party who is attempting to gain an unfair advantage over another party by manipulating the court system." Id. at 171, 913 A.2d at 23. To that end,

[b]efore judicial estoppel may be applied, three circumstances must exist: (1) one of the parties takes a [ ] position that is inconsistent with a position it took in previous litigation, (2) the previous inconsistent position was accepted by a court, and (3) the party who is maintaining the inconsistent positions must have intentionally misled the court in order to gain an unfair advantage.

Id. at 171, 913 A.2d at 22 (citation omitted).

In Powell v. Breslin, 430 Md. 52, 63–64, 59 A.3d 531, 537–38 (2013), this Court described the doctrine of res judicata, or claim preclusion, as well as the circumstances that must be present for the doctrine to apply, stating:

Res judicata is an affirmative defense that precludes the same parties from relitigating any suit based upon the same cause of action because the second suit involves a judgment that is conclusive, not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit.

In Maryland, the doctrine of res judicata precludes the relitigation of a suit if (1) the parties in the present litigation are the same or in privity with the parties to the earlier action; (2) the claim in the current action is identical to the one determined in the prior adjudication; and (3) there was a final judgment on the merits in the previous action. The overarching purpose of the res judicata doctrine is judicial economy.

(Citations and internal quotation marks omitted).

In a similar vein, this Court has described the doctrine of collateral estoppel, or issue preclusion, as follows: "[W]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim." Colandrea v. Wilde Lake Cmty. Ass'n, Inc., 361 Md. 371, 387, 761 A.2d 899, 907 (2000) (citation and internal quotation marks omitted). For the doctrine of collateral estoppel to apply, the following four-part test must be satisfied:

1. Was the issue decided in the prior adjudication identical with the one presented in the action in question?

2. Was there a final judgment on the merits?

3. Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication?

4. Was the party against whom the plea is asserted given a fair opportunity to be heard on the issue?

Id. at 391, 761 A.2d at 909 (citation omitted). We have explained the relationship between the doctrines of res judicata and collateral estoppel as follows:

Collateral estoppel is concerned with the issue implications of the earlier litigation of a different case, while res judicata is concerned with the legal consequences of a judgment entered earlier in the same cause. The two doctrines are based upon the judicial policy that the losing litigant deserves no rematch after a defeat fairly suffered, in adversarial proceedings, on issues raised, or that should have been raised.

Id. at 390–91, 761 A.2d at 909 (citations omitted).

Now, we briefly set the factual stage. Here, in 2010, a financial institution that was the former owner of a note for a refinance mortgage loan sued a married couple for reformation of the refinance deed of trust because the wife had not signed the refinance deed of trust, and the former owner of the note was thus unable to institute foreclosure proceedings against the couple's property, which the couple owned as tenants by the entirety. Significantly, the former owner of the note brought the lawsuit in its name and on its own behalf, although it was no longer the note owner and was rather the master servicer. Ultimately, after a bench trial, the trial court ruled in the couple's favor and against the former owner of the note as to the merits of the case on the issue of mutual mistake and as to standing to bring the lawsuit. Three years later, in 2013, the current owner of the note and the title insurer of the refinance mortgage loan sued the couple for reformation of the refinance deed of trust. In the second lawsuit, the trial court again ruled in the couple's favor, concluding that the current owner of the note and the title insurer were barred by res judicata and collateral estoppel from bringing and relitigating the claims in the second lawsuit. In so ruling, the trial court rejected an argument that the first trial court's ruling on the merits of the case had been a contingent ruling and not a final judgment. The trial court also concluded that judicial estoppel did not apply and that the couple was not barred from asserting an argument in the second lawsuit that the current owner of the note and the title insurer were in privity with the former owner of the note/master servicer. On appeal, the Court of Special Appeals affirmed the trial court's judgment. Thereafter, the current owner of the note and the title insurer filed in this Court a petition for a writ of certiorari , which this Court granted.

Against this very distinctive legal and factual backdrop, we decide whether: (I) the trial court in the second lawsuit properly declined to apply judicial estoppel and properly ruled that the couple was not barred by judicial estoppel from asserting that the current owner of the note and the title insurer were in privity with the former owner of the note/master servicer; and (II) the trial court in the second lawsuit correctly determined that the first trial court's ruling as to the merits of the case concerning mutual mistake was an independent, alternative ruling, and not a contingent ruling—i.e. , that the ruling on the merits was a final judgment—and that res judicata and collateral estoppel barred the current owner of the note and the title insurer from bringing and relitigating their claims in the second lawsuit.

We hold that: (I) the prerequisites that must exist before judicial estoppel may be applied are not satisfied, and, as such, the trial court properly declined to apply judicial estoppel to bar the couple's argument that the current owner of the note and the title insurer were in privity with the former owner of the note. Specifically, because the three circumstances that must be fulfilled for the application of judicial estoppel are not established—the couple's position with respect to privity is not inconsistent with their position with respect to standing in the first lawsuit, as standing and privity do not give rise to mutually exclusive arguments but are instead two different concepts—the trial court properly ruled that judicial estoppel did not bar the couple's privity argument; and (II) the first trial court's ruling as to the merits of the case concerning mutual mistake was an independent, alternative ruling, and not a contingent ruling, and thus, under the circumstances of this case, constituted a final judgment for purposes of res judicata and collateral estoppel. Accordingly, the trial court in the second lawsuit properly determined that the elements of res judicata and collateral estoppel were satisfied and thus barred the current owner of the note and the title insurer from bringing the claims in the second lawsuit.

BACKGROUND

This case involves a refinance mortgage loan for real property located in Cockeysville, Maryland ("the Property")¹ owned by Heinz Otto Georg ("Heinz") and his wife Susan M. Georg ("Susan"), Respondents.² On February 15, 2002, Respondents first acquired title to the Property, which was unimproved, as tenants by the entirety. In June 2004, Respondents entered into a contract with a builder for the Property. And, on September 30, 2004, Respondents executed a deed of trust in favor of Chevy Chase Bank, F.S.B. ("Chevy Chase"), with an original construction loan amount of $807,000. Almost two years later, on September 2, 2006, Respondents executed a second deed of trust in favor of Chevy Chase for an additional $100,000 home equity line of credit. Thereafter, Respondents sought to refinance the construction loan and the home equity line of credit, both of which were secured by deeds of trust on the Property.

To that end, on October 26, 2006, Heinz executed a note in the principal amount of $1,130,119 to First Horizon Home Loan Corporation ("First Horizon"), a lender, for the purpose of refinancing the construction loan and the...