Henderson v. Snider Bros., Inc.

• Decision Date: 19 December 1979
• Docket Number: No. 13271.,No. 13876.,13271.,13876.
• Citation: 409 A.2d 1083
• Parties: Arthur R. HENDERSON et al., Appellants, v. SNIDER BROS., INC., et al., Appellees. Oliver A. COWAN, Jr., Appellant, v. Arthur R. HENDERSON et al., Appellees.
• Court: D.C. Court of Appeals

Page 1083

409 A.2d 1083

Arthur R. HENDERSON et al., Appellants, v. SNIDER BROS., INC., et al., Appellees. Oliver A. COWAN, Jr., Appellant, v. Arthur R. HENDERSON et al., Appellees.

No. 13271.

No. 13876.

District of Columbia Court of Appeals.

Argued January 18, 1979.

Decided December 19, 1979.

Shellie F. Bowers, Washington, D. C., for appellants Arthur R. Henderson et al.

Jeffrey M. Frost, Chevy Chase, Md., for appellees Snider Bros., Inc., et al., Profit Sharing Trust.

Michael A. Schuchat, Washington, D. C., for appellees Abraham H. Goldkind, Helen Goldkind, Ely Weinkranz and Lena Weinkranz.

Loren Kieve, Washington, D. C., for Oliver A. Cowan, Jr.

Richard W. Galiher, Washington, D. C., filed a brief on behalf of Snider Brothers, Inc. and Oliver A. Cowan, Jr.

Before KELLY and MACK, Associate Judges, and YEAGLEY, Associate Judge, Retired.

KELLY, Associate Judge:

This case presents the issue of whether a Maryland decree effecting a sale in foreclosure of property owned by appellants has a collateral estoppel effect on appellants' subsequent claims that they were fraudulently induced to purchase the property and that one of their partners violated his fiduciary duty to the partnership and is guilty of misrepresentation. The trial court, in consideration of the former claims, found that collateral estoppel applied to bar the fraud claim and dismissed that portion of the complaint. Appellants in No. 13271 cite that dismissal as error.¹ Appellant in No. 13876 cites the trial court's failure to dismiss the breach of fiduciary duty and misrepresentation claims as error.

On February 14, 1973, Drs. Henderson, Staton, Blackwell, Hyde, Edwards, and West and their respective wives formed a partnership with Oliver Cowan and his wife in order to purchase the Parkview Towers Apartments in Takoma Park, Maryland. They did so purchase the property from Messrs. Goldkind and Weinkranz and their wives for $1,800,000. The purchasers assumed a wrap around mortgage of about $1,450,000, tendered $110,000 cash, and executed two deferred purchase money notes, number one in the amount of $249,222.54 and number two for $50,000. Snider Brothers, Inc. served as real estate brokers for the sale; it later also became the holder of the notes. Cowan was an employee of Snider Brothers.

For various reasons, the investment turned bad. The doctors believed that the revenues generated by the property would be sufficient to sustain the property and retire the notes; apparently such was not the case.

In July of 1975, appellants discovered that note number two, the $50,000 note, had been negotiated to their partner Cowan. They made no further payments on the note. In January 1976, Snider Brothers informed appellants that it held note number two and that the balance due was $37,959.64. The note, apparently was then negotiated to Snider Brothers, Inc. Profit Sharing Trust.²

Appellants filed the suit against the sellers, Snider Brothers, Inc. Profit Sharing Trust, and Cowan, which is the subject of this appeal on February 11, 1976.³ The suit alleged that Cowan, as an agent for Snider Brothers, fraudulently induced appellants to enter into the purchase by representing to them that the investment was a good one; that they would be making a fixed, limited investment for the purpose of acquiring a tax shelter; that the property would be self-sustaining; and that he, Cowan, would have no interest in the property, other than that of a partner, and that he would be receiving no commission from the sale.⁴

On March 2, 1976, the sellers initiated foreclosure proceedings in a Maryland court. Appellants did not contest the foreclosure, but did file exceptions to the auditor's report. They also brought the District of Columbia action to the attention of the Maryland court and asked that any judgment, against appellants in Maryland be offset by any judgment for appellants in the District.

The Maryland court modified and ratified the auditor's report. No appeal was taken. On August 11, 1977, appellees filed a motion in the Superior Court of the District of Columbia to dismiss appellants' fraud action on the basis of res judicata. After initially denying the motion, the trial court, relying on the doctrine of collateral estoppel, ultimately granted it as to all defendants (appellees) except Cowan (the fiduciary duty claim). Although the ruling on Cowan's motion was not a final judgment, he brought this appeal pursuant to Super.Ct. Civ.R. 54(b).⁵ That appeal was consolidated by this court with the appeal from the dismissal order.

In Part I of this opinion, we compare the doctrines of res judicata and collateral estoppel to determine which doctrine is the appropriate one to apply here. Part II will analyze appellants' claim of fraud with respect to the elements of the appropriate doctrine. In Part III, we address the relationship between the Maryland foreclosure action and appellants' claim of fraud. Finally, in Part IV, we apply the law to the facts in No. 13271 in resolution of the issues. No. 13876 is discussed in Part V.

I

The trial court held, and we agree, that this case presents issues of collateral estoppel, not res judicata. Literally, res judicata means "matter adjudged." 46 Am. Jur.2d § 394 at 558 (1969). It contemplates a situation where a specific cause of action that has been brought to a final judgment is the subject of a second suit. Collateral estoppel, on the other hand, involves relitigation of matters of fact which were, and necessarily must have been, determined in the first litigation. Tutt v. Doby, 148 U.S. App.D.C. 171, 459 F.2d 1195 (1972).⁶ But see David v. Nemerofsky, D.C.Mun.App., 41 A.2d 838 (1945).

A number of concepts inhere to the doctrines; most prominert among them is the need for judicial economy and finality of judgment. Where there exists but one allegation of wrongdoing, the aggrieved party should be given but one opportunity to allege that wrong. Similarly, where the facts that give rise to a legal action are fully litigated in one forum, there is no rationale for relitigating those facts elsewhere. To follow any other course of action would be to waste valuable judicial resources, Tutt v. Doby, supra 148 U.S.App. D.C. at 175, 459 F.2d at 1199.

The doctrine of collateral estoppel is involved here. The first action was one of foreclosure on a mortgage, an action in equity governed by equitable principles and procedures. The second was an action at law based on the common law tort of fraud. Conceptually, as well as facially, the two are distinct actions, and while a judgment in the former may finally conclude some issues pertinent to the second, it cannot be said that such judgment precluded litigation of the entire second cause of action.

II

The elements of collateral estoppel were set out succinctly in 1B Moore's Federal Practice ¶ 0.443[1], at 3901 (3d ed. 1974):

Among the requirements courts have set out in order that collateral estoppel may apply are the following. The issue to be concluded must be the same as that involved in the prior action. In the prior action, the issue must have been raised and litigated, and actually adjudged. The issue must have been material and relevant to the disposition of the prior action. The determination made of the issue in the prior action must have been necessary and essential to the resulting judgment. [Footnotes omitted.]

Moore's notes that each of these elements must be present for the application of the doctrine; otherwise, relitigation of the issue in question would not be barred. Id. at 3902.

As noted earlier, there exists some degree of confusion as to whether the appropriate standard for the application of collateral estoppel is "actually litigated and necessarily decided," or "actually litigated or necessarily decided." See note 6 supra. In this jurisdiction, both standards have been used, either implicitly or explicitly. Compare David v. Nemerofsky, supra, and Tutt v. Doby, supra, 148 U.S.App.D.C. at 173, 459 F.2d at 1197,⁷ with Liberty Mutual Insurance Co. v. District of Columbia, D.C.App., 316 A.2d 871, 874 (1974), and Tutt v. Doby, supra, 148 U.S.App.D.C. at 175 & n. 4, 459 F.2d 1199 & n. 4. Accord, United States v. Smith, D.C.App., 337 A.2d 499 (1975) (criminal case). The reason for this confusion, in this jurisdiction as well as others, is the tendency of courts to label, as res judicata, a broad spectrum of doctrines of issue preclusion including both res judicata and collateral estoppel. Moore's, supra ¶ 0.441[2] at 3775; see Liberty Mutual Insurance Co. v. District of Columbia, supra (treating issue as collateral estoppel, citing cases on res judicata); Gordan v. William J. Davis, Inc., D.C.App., 270 A.2d 138, 139, 140 (1970), citing Tutt v. Doby, D.C.App., 265 A.2d 304 (1970), rev'd, 148 U.S.App.D.C. 171, 459 F.2d 1195 (1972) (applying res judicata where first judgment was a default judgment for rent and second suit involved housing regulations issues); Abramson v. Grady, D.C. App., 284 A.2d 174 (1967) (using an "actually litigated and necessarily decided" standard for res judicata). As a result, the distinction between the doctrines sometimes becomes blurred.

The distinction between the doctrines, as noted above, is a real one, and it results in two distinct tests for issue preclusion. Where res judicata applies, any issue that was raised, or that could have been raised, is concluded by the final order. Where collateral estoppel applies, only those issues actually raised and litigated to final determination are concluded. Moore's supra ¶ 0.448[8] at 3910. As Moore's points out,

[t]his does not, of course, mean that collateral estoppel permits a contention not made in the prior action to be urged subsequently as a means of contradicting an adjudicated finding; in such a case, the new contention is subsumed in the issue already adjudicated, and is thus precluded. But it does mean that a new issue, which can be urged without any contradiction of the...