Henderson v. Snider Bros., Inc.

Decision Date16 December 1981
Docket NumberNo. 13271.,No. 13876.,13271.,13876.
Citation439 A.2d 481
PartiesArthur R. HENDERSON, et al., Appellants, v. SNIDER BROS., INC., et al., Appellees. Oliver A. COWAN, Jr., Appellant, v. Arthur R. HENDERSON, et al., Appellees.
CourtD.C. Court of Appeals

Mose Lewis, III, Washington, D. C., for appellants in No. 13271 and appellees in No. 13876.

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.

Richard W. Galiher and Loren Kieve, Washington, D. C., for appellees in No. 13271 and appellant in No. 13876.

Before KELLY, KERN, NEBEKER, HARRIS, MACK, FERREN and PRYOR,* Associate Judges, and YEAGLEY and GALLAGHER,** Associate Judges, Retired.

YEAGLEY, Associate Judge, Retired:

[1] These cases present the issue of whether a Maryland decree effecting a sale in foreclosure of property owned by appellants1 precludes appellants' subsequent suit in this forum asserting that they had been fraudulently induced to purchase the property (No. 13271) and, secondly, whether one of their partners violated his fiduciary duty to the partnership and is guilty of misrepresentation. The trial court found that collateral estoppel applied to bar the fraud claim and dismissed that portion of the complaint. Appellants cite that dismissal as error.2 Appellant Cowan in No. 13876 cites the trial court's failure to dismiss the breach of fiduciary duty and misrepresentation claims against him as error.

A majority of a division of this court reversed the trial court's decision in No. 13721 on the ground that the doctrine of collateral estoppel is not applicable to the facts in issue. The panel affirmed in No. 13876 the trial court's denial of appellant's motion to dismiss the breach of fiduciary duty and misrepresentation claims.3

A petition for rehearing en banc by appellee Snider Bros., Inc. (No. 13271) and by appellant Cowan (No. 13876) was granted, and the divided panel decision was vacated. Finding that the trial court's rulings were correct, we affirm.

On February 14, 1973, Drs. Henderson, Statom, Blackwell, Hyde, Edwards, and West and their respective wives formed a partnership with Oliver Cowan and his wife to purchase the Parkview Towers Apartments in Takoma Park, Maryland. The partnership then purchased the property from Messrs. Goldkind and Weinkranz and their wives for $1,860,000. The purchasers assumed a wrap-around mortgage of approximately $1,450,000, tendered $110,000 in cash, and executed two deferred purchase money notes to the sellers, the first in the amount of $249,222.54, and the second for $50,000. Snider Bros., Inc. served as real estate brokers for the sale. It later also became the holder of the notes. Cowan was an employee of Snider Bros.

For various reasons, the investment turned bad. The doctors had understood that the revenues generated by the apartments would be sufficient to maintain the property and retire the notes — however, such was not the case.

In July 1975, appellants discovered that the $50,000 note had been negotiated by the sellers to their partner, Cowan. They made no further payments on the note. In January 1976, Snider Bros. informed appellants that it held that note and that the balance due was $37,959.64. The note was apparently then negotiated to Snider Bros., Inc. Profit Sharing Trust.4

Appellants filed this suit in Superior Court against the sellers, Snider Bros., Inc. and Cowan on February 11, 1976.5 The suit alleged that Cowan, as an agent of Snider Bros. fraudulently induced appellants to enter into the purchase agreement 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. Appellants alleged that the purchase price was $367,000 more than the actual value of the property.

On March 2, 1976, the sellers initiated foreclosure proceedings in a Maryland court and appellants did not contest the foreclosure. At the ensuing public auction, the sellers purchased the property, subject to existing encumbrances. The foreclosure sale was ratified by the court on April 26, 1976. After the auditors' report was filed, appellants filed exceptions thereto and apprised the Maryland court of the pendency of their fraud action in Superior Court, requesting that any monies awarded to them in the fraud action be considered in reduction of any deficiencies under their promissory notes.

On March 22, 1977, the Maryland court modified and ratified the auditors' report, which found a deficiency under note # 1 of $162,764.14, and under note # 2, the sum of $28,758.68. There was no appeal from either the final order of ratification of the foreclosure sale or from the order ratifying the auditors' report, as modified.

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 the motion on the fraudulent inducement claim as to all defendants (appellees) including Cowan, but denied Cowan's motion to dismiss on the fiduciary duty and misrepresentation claims. Although the ruling on Cowan's motion was not a final judgment, the trial court, pursuant to D.C.Code 1973, § 11-721(d), certified that an immediate appeal on the ruling on Cowan's claim would advance the ultimate termination of the case. Cowan's appeal was consolidated by this court with the appeal from the dismissal order.

It is irrelevant for the purpose of our res judicata analysis that the nature of the two proceedings is different. When the parties are the same, and the essence of the claim and the evidence necessary to establish it are the same, res judicata applies. See World Wide Imported Car Co., Ltd. v. Savings Bank of Baltimore, 41 Md.App. 263, 270-72, 396 A.2d 547, 551 (1979), quoting Klein v. Whitehead, 40 Md.App. 1, 389 A.2d 374 (1978).

The doctrine of res judicata (direct estoppel) requires that a valid, final judgment when rendered on the merits be considered an absolute bar to a subsequent action based on the same claim or demand between the same parties. Collateral estoppel, on the other hand, precludes relitigation of issues which were litigated in a previous, but different, cause of action involving a party to the prior litigation. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979); Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195 (1878). See 1B MOORE'S FEDERAL PRACTICE ¶ 0.405[1], at 621 (3d ed. 1974). Under the doctrine of res judicata ". . . a judgment estops not only as to every ground of recovery or defense actually presented in the action, but also as to every ground which might have been presented . . . ." Cromwell v. County of Sac, supra at 383.

Both parties agree, and we so hold here, that Maryland law controls our determination of the applicability of res judicata or collateral estoppel.6 Whether res judicata or collateral estoppel applies depends on whether the same, or a different cause of action is the subject of the second suit. Here, the first proceeding to go to judgment was the action in Maryland seeking foreclosure and a dollar deficiency on the promissory notes growing out of the sale of real estate. The instant action attacks the sale of the property to appellants as fraudulent in that the value of the property was misrepresented to them, and the rental income did not cover costs as represented. This claim necessarily involves an attack on the validity of the sales price and therefore goes to the validity of the promissory notes involved in the foreclosure. The evidence necessary to support a judgment for appellants of fraud in the foreclosure action.

Maryland law has long held that a judgment ratifying the sale of property in foreclosure proceedings is res judicata to a subsequent cause of action attacking the validity of such sale. Since the fraud issue could have and should have been raised in the foreclosure proceedings, all questions which the mortgagor had concerning misrepresentation as to the sales price, and the validity of the sale have been finally adjudicated, and cannot now be raised. Hohensee v. Minear, 259 Md. 603, 606-07, 270 A.2d 776, 778 (1970); Bachrach v. Washington United Cooperative, 181 Md. 315, 320, 29 A.2d 822, 825 (1943).

The Maryland Court of Appeals has said:

One aspect of direct estoppel is that a party must raise all defenses he has to a cause of action and once that action is concluded he cannot use a defensive matter as a basis for relief in a subsequent action between the parties. [Singer v. Steven Kokes, Inc., 39 Md.App. 180, 182, 384 A.2d 463, 465 (1978), citing Ashman v. Ashman, 201 Md. 445, 450-51, 94 A.2d 257, 259 (1953).]

See 50 C.J.S. Judgments § 682 (1947). See also Bainder v. Sound Building & Loan Association, 161 Md. 597, 158 A.2d 2 (1932). In the landmark case of Cromwell v. County of Sac, supra at 352-53, the Supreme Court said:

Thus, for example, a judgment rendered upon a promissory note is conclusive as to the validity of the instrument and the amount due upon it, although it be subsequently alleged that perfect defences actually existed, of which no proof was offered, such as forgery, want of consideration, or payment. If such defences were not presented in the action, and established by competent evidence, the subsequent allegation of their existence is of no legal consequence. The judgment is as conclusive, so far as future proceedings at law are concerned, as though the...

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