Davis v. Marshall Homes, Inc.

• Decision Date: 28 February 2003
• Docket Number: Record No. 020421.
• Citation: 576 S.E.2d 504,265 Va. 159
• Parties: Anita Lee DAVIS v. MARSHALL HOMES, INC. and Marshall Meredith, Individually.
• Court: Virginia Supreme Court

576 S.E.2d 504

265 Va. 159

Anita Lee DAVIS v. MARSHALL HOMES, INC. and Marshall Meredith, Individually.

Record No. 020421.

Supreme Court of Virginia.

February 28, 2003.

Steven Frucci (Brydges, O'Brien & Frucci, on brief), Virginia Beach, for appellant.

Melvin J. Radin, Norfolk, for appellees.

Present: HASSELL, C.J., LACY, KEENAN, KOONTZ, KINSER, and LEMONS, JJ., and CARRICO, S.J.¹

LEROY R. HASSELL, SR., Chief Justice.

I.

In this appeal, we consider whether the doctrine of res judicata bars a plaintiff's action to recover damages because of the defendants' alleged failure to pay deed of trust notes when the plaintiff had unsuccessfully filed a prior motion for judgment for actual fraud against the defendants.

II.

In 1999, plaintiff, Anita Lee Davis, filed a motion for judgment against Marshall Meredith, Inc., Marshall Homes, Inc., Marshall Meredith, individually, Perpetual Homes, Inc., and John M. Scott. Plaintiff pled in her motion for judgment that these defendants committed acts of actual fraud against her.

Plaintiff alleged that on several occasions in 1995 she loaned money to defendants for the purpose of purchasing various real properties that defendants agreed to refurbish and sell for a profit. Plaintiff alleged that defendants intentionally misrepresented to her the value of the real properties and deceived her because even though they told her that they would "refurbish" each property, defendants never intended to do so. Plaintiff stated in her motion for judgment that "[a]t the time of each request [by defendants] for a loan and representation as to the value of each real estate, the defendants knew that the actual value of the real estate was less than what they represented to the plaintiff, and as a result of this misrepresentation, the plaintiff lent them money for the purpose of the defendants purchasing the property, with additional funds available for refurbishing the property, at a 10% rate of interest. Further, not only did the defendants know that the value of the property was substantially less than what they had represented, they also knew at the time of the purchase that they were not going to refurbish the property and/or sell it for profit resulting in the plaintiff being left with the property and an outstanding Note based on an inflated property value."

Plaintiff stated in her motion for judgment that she sought "judgment against the defendants, jointly and severally, in the amount of $528,486.00 representing the amount of the inflated price of the real estate, $250,000.00 in punitive damages, attorney's fees, pre and post judgment interest and any and all other costs expended herein." Subsequently, plaintiff's motion for judgment for actual fraud was dismissed with prejudice against defendants Marshall Meredith, Inc., Marshall Homes, Inc., and Marshall Meredith, individually.

In 2001, plaintiff filed her present action. She alleged in her amended motion for judgment that Marshall Homes, Inc., and Marshall Meredith, individually, executed four separate deed of trust notes and that these defendants "failed and refused to make any payments on the [notes]" and that the defendants "surrendered" the properties that secured the deed of trust notes to plaintiff. Plaintiff alleged that she "spent money to improve the properties for sale and incurred net losses ... after the sale of each property." Plaintiff requested a "judgment against the defendants, jointly and severally, in the amount of One Hundred Sixty Four Thousand, Two Hundred Twenty Dollars and Seventy Six Cents ($164,220.76), plus interest at 10% per annum through date of sale, as well as interest accruing thereafter on the loss at 9% per annum, attorney's fees, and any and all other costs expended herein."

Defendants filed a plea of res judicata and asserted that plaintiff's action was barred because the circuit court had entered an order that dismissed with prejudice her prior action for actual fraud. Defendants argued that the factual allegations and damages claimed in the fraud action were based upon the same facts and damages described in the breach of contract action. The circuit court agreed with the defendants and entered an order that sustained the plea of res judicata and dismissed plaintiff's action with prejudice. Plaintiff appeals.

III.

A.

The principles that this Court must apply to our resolution of this appeal are well established and familiar. We have repeatedly stated that "[t]he bar of res judicata precludes relitigation of the same cause of action, or any part thereof, which could have been litigated between the same parties and their privies." Smith v. Ware, 244 Va. 374, 376, 421 S.E.2d 444, 445 (1992). Accord Scales v. Lewis, 261 Va. 379, 382, 541 S.E.2d 899, 901 (2001); Flora, Flora & Montague, Inc. v. Saunders, 235 Va. 306, 310, 367 S.E.2d 493, 495 (1988); Bates v. Devers, 214 Va. 667, 670-71, 202 S.E.2d 917, 920-21 (1974). We have consistently held that a litigant who seeks to bar a claim based upon the defense of res judicata must establish four elements: identity of the remedy sought; identity of the cause of action; identity of the parties; and identity of the quality of the persons for or against whom the claim is made. State Water Control Bd. v. Smithfield Foods, Inc., 261 Va. 209, 214, 542 S.E.2d 766, 769 (2001); Balbir Brar Assoc., Inc. v. Consolidated Trading and Serv. Corp., 252 Va. 341, 346, 477 S.E.2d 743, 746 (1996); Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986).

We have also stated that:

"The judicially created doctrine of res judicata rests upon public policy considerations which favor certainty in the establishment of legal relations, demand an end to litigation, and seek to prevent the harassment of parties.... The doctrine prevents `relitigation of the same cause of action, or any part thereof which could have been litigated, between the same parties and their privies.' ... A claim which `could have been litigated' is one which `if tried separately, would constitute claim-splitting.'

"`Claim-splitting' is bringing successive suits on the same cause of action where each suit addresses only a part of the claim. Jones v. Morris Plan Bank of Portsmouth, 168 Va. 284, 291, 191 S.E. 608, 610 (1937). Courts have imposed a rule prohibiting claim-splitting based on public policy considerations similar to those underlying the doctrine of res judicata: avoiding a multiplicity of suits, protecting against vexatious litigation, and avoiding the costs and expenses associated with numerous suits on the same cause of action."

Bill Greever Corp. v. Tazewell Nat'l Bank, 256 Va. 250, 254, 504 S.E.2d 854, 856-57 (1998).

The doctrine of res judicata only applies if the cause of action a plaintiff asserts in the pending proceeding is the same as the cause of action asserted in the former proceeding. City of Virginia Beach v. Harris, 259 Va. 220, 229, 523 S.E.2d 239, 243 (2000). And, the litigant who asserts the defense of res judicata has the burden of proving by a preponderance of the evidence that the claim is precluded by a prior judgment. Scales, 261 Va. at 383, 541 S.E.2d at 901.

Applying these well-established principles, we hold that the circuit court erred in concluding that plaintiff's cause of action for breach of contract is barred by the doctrine of res judicata. As we have already stated, the litigant who asserts the doctrine of res judicata as a bar to the plaintiff's claim must show, among other things, the "identity of the cause of action." In this case, defendants cannot satisfy this requirement.

In her first cause of action, plaintiff alleged acts of actual fraud on the part of the defendants. The basis of plaintiff's actual fraud claim was that she was damaged because of her reliance upon defendants' misrepresentations of the values of collateral that secured the deed of trust notes. We have held "that a `litigant who prosecutes a cause of action for actual fraud must prove by clear and convincing evidence: (1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled.'" Prospect Dev. Co., Inc. v. Bershader, 258 Va. 75, 85, 515 S.E.2d 291, 297 (1999) (quoting Bryant v. Peckinpaugh, 241 Va. 172, 175, 400 S.E.2d 201, 203 (1991)); accord Richmond Metro. Auth. v. McDevitt Street Bovis, Inc., 256 Va. 553, 557-58, 507 S.E.2d 344, 346 (1998); Evaluation Research Corp. v. Alequin, 247 Va. 143, 148, 439 S.E.2d 387, 390 (1994); Winn v. Aleda Constr. Co., Inc., 227 Va. 304, 308, 315 S.E.2d 193, 195 (1984).

A review of the motion for judgment in the fraud action reveals that plaintiff would have been required to establish by clear and convincing evidence that defendants approached her and requested loans for the purpose of refurbishing and selling the real properties for a profit, defendants misrepresented the values of the real properties, plaintiff relied upon defendants' misrepresentations and loaned funds to defendants for the purchases of the real properties, defendants purchased the properties at their actual values, defendants never intended to honor their promises to plaintiff that they would "refurbish and sell the properties," and plaintiff incurred damages related to the misrepresentations.

In her later contract action to recover for losses sustained because of defendants' failure to pay the deed of trust notes, plaintiff would have been required to prove, by a preponderance of the evidence, the existence of the notes, the defendants' failure to pay the notes, and damages.

We reject defendants' contention that plaintiff only had one cause of action, and that plaintiff improperly split her single cause of action because the "same evidence" was necessary to prove plaintiff's fraud and breach of contract claims. Defendants are incorrect for numerous reasons. This Court held in Brown v. Haley, 233 Va. 210, 216, 355...