Food for Health Co., Inc. v. 3839 Joint Venture, 1

• Decision Date: 14 May 1981
• Docket Number: No. 1,CA-CIV,1
• Citation: 129 Ariz. 103,628 P.2d 986
• Parties: FOOD FOR HEALTH CO., INC., aka Food for Health, Inc., an Arizona corporation, Plaintiff-Appellee, v. 3839 JOINT VENTURE, an Arizona entity; Russell B. Miller, Reba Miller, his wife; Anthony Schopp, Doris D. Schopp, his wife; Elaine E. Cohen, individually and as Personal Representative of the Estate of Phillip Cohen; Norman J. Fuchs, Rhoda L. Fuchs, his wife; Perry Mehlman, Shirleen Mehlman, his wife, Defendants- Appellants. 4673.
• Court: Arizona Court of Appeals

Page 986

628 P.2d 986

129 Ariz. 103

FOOD FOR HEALTH CO., INC., aka Food for Health, Inc., an Arizona corporation, Plaintiff-Appellee, v. 3839 JOINT VENTURE, an Arizona entity; Russell B. Miller, Reba Miller, his wife; Anthony Schopp, Doris D. Schopp, his wife; Elaine E. Cohen, individually and as Personal Representative of the Estate of Phillip Cohen; Norman J. Fuchs, Rhoda L. Fuchs, his wife; Perry Mehlman, Shirleen Mehlman, his wife, Defendants- Appellants.

No. 1 CA-CIV 4673.

Court of Appeals of Arizona, Division 1, Department A.

May 14, 1981.

Monbleau, Vermeire & Turley, P.C., by Kent E. Turley, Phoenix, for plaintiff-appellee.

Jones, Teilborg, Sanders, Haga & Parks, P.C., by David L. Haga, Phoenix, for defendants-appellants.

OPINION

FROEB, Judge.

In 1970, the individual defendants (except the Mehlmans) entered into a contract for the purchase of improved real estate from Andrew P. and Mary J. Tell. A joint venture was formed for the development and management of the property. In 1972, a portion of the property was leased to plaintiff-appellee Food for Health which entered into possession of the premises to conduct its business. On November 7, 1975, the Tells and Continental Service Corporation forfeited the interest of the joint venture in the property which returned ownership to the Tells. In December 1975, Food for Health negotiated a new lease with the Tells and remained on the premises. A lawsuit (not the present suit) was then brought in the Maricopa County Superior Court by several of the defendants in the present case alleging that the forfeiture was wrongful. The claim was defeated when the trial court entered a judgment on the pleadings against them. An appeal to this court followed which was compromised and dismissed with prejudice by stipulation of the parties.

The present lawsuit was filed by Food for Health on June 10, 1977, alleging a claim for damages against the defendants-appellants for breach of the original lease based upon violation of the lease covenant for quiet possession. Food for Health moved for partial summary judgment on the issue of liability based upon the judgment in the earlier suit which decided the forfeiture proceeding was not unlawful. After the court granted the motion, the defendants brought the present appeal and are, for clarity, hereafter referred as the lessors. Food for Health is referred to as the lessee. Additional facts as are necessary will be mentioned in context of the legal arguments.

The subject matter of this case is the doctrine of collateral estoppel and its application. The controlling issue is whether the judgment which is claimed to give rise to collateral estoppel was fully and fairly litigated in the earlier proceedings. We hold that the judgment meets that test and affirm. In our analysis we distinguish between offensive and defensive use of collateral estoppel and find that it is used defensively in this case.

WAS THE EARLIER JUDGMENT FULLY AND FAIRLY LITIGATED?

The lessee's claim against the lessors is based upon the theory that lessee was constructively evicted from the premises when the lessors' interest in the property was lost by forfeiture. To overcome the lessors' defense that the forfeiture was wrongful and thus not their responsibility, lessee took the position that the issue had been finally determined in the earlier proceedings between lessors and the Tells. The motion for summary judgment filed by lessee in the present case asserted that lessors were collaterally estopped from taking a position contrary to the determination underlying the earlier judgment that the forfeiture was lawful.

It is the rule that for an issue to be conclusive in a subsequent action it must have been actually litigated and determined by a valid and final judgment. Krumtum v. Burton, 111 Ariz. 448, 532 P.2d 510 (1975); Restatement (Second) of Judgments § 68 (Tentative Draft No. 4, 1977). The prior judgment was entered by the trial court as a result of a motion for judgment on the pleadings. Such a motion tests the sufficiency of the complaint in stating a claim for relief. Shannon v. Butler Homes, Inc., 102 Ariz. 312, 428 P.2d 990 (1967). A motion for judgment on the pleadings for the purposes thereof admits all material allegations of the opposing party's pleadings, and all allegations of the moving party which have been denied are taken as false so that a motion for judgment on the pleadings is only granted if the moving party is clearly entitled to judgment. Jamison v. Southern States Life Insurance Co., 3 Ariz.App. 131, 412 P.2d 306 (1966). Such was the situation here. The judgment which resulted constitutes the required "actual litigation" which is necessary to give it preclusive effect under the doctrine of collateral estoppel. Although we are not referred to a case involving a judgment on the pleadings, summary judgment has been held to furnish the basis for collateral estoppel and for these purposes we see no distinction. See Exhibitors Poster Exchange, Inc. v. National Screen Service Corp., 517 F.2d 110 (5th Cir. 1975), cert. den., 423 U.S. 1054, 96 S.Ct. 784, 46 L.Ed.2d 643 (1975); accord, Yavapai County v. Wilkinson, 111 Ariz. 530, 534 P.2d 735 (1975).

Lessors argue that the prior judgment can have no preclusive effect for collateral estoppel purposes because a timely appeal was filed and that during the pendency of the appeal a compromise was reached whereby on stipulation the appeal was dismissed with prejudice. Lessors contend that the dismissal of the appeal prevented the issues from being fully and finally adjudicated and thus destroyed the preclusive effect of the judgment for collateral estoppel purposes.

This question is a matter of first impression in Arizona and we have not been referred to any case from other jurisdictions precisely deciding the issue. Lessors argue that because the judgment on appeal was, by reason of the appeal, not final, the stipulated dismissal of the appeal with prejudice prevented a full and fair adjudication. It analogizes the situation to settlement before judgment referred to in comment (e) to § 68 of the Restatement (Second) of Judgments (Tentative Draft No. 4, 1977):

In the case of a judgment entered without contest by confession, consent, or default, none of the issues is actually litigated.

We disagree, however, that the situation is analogous. The dismissal of the appeal with prejudice gave finality to the judgment. The net effect of the dismissal of the appeal was to allow the adjudication of the forfeiture issue by the trial court to stand. The parties to the stipulation could have provided that the judgment be vacated but they did not do so. For purposes of collateral estoppel, it is the same as if no appeal had been taken in the first place. We hold therefore that the issue of the forfeiture was fully and fairly litigated in the earlier proceedings.

DOES LESSEE SEEK TO USE THE JUDGMENT OFFENSIVELY OR DEFENSIVELY?

Summary judgment was entered in this case in favor of lessee on the question of constructive eviction on the ground that the issue of forfeiture had been finally decided in the earlier case even though lessee was not a party to...