Lambert v. Maryland Cas. Co.

• Decision Date: 15 June 1981
• Docket Number: No. 10252,10252
• Parties: Sharon W. LAMBERT and Donald Lambert v. MARYLAND CASUALTY COMPANY.
• Court: Court of Appeal of Louisiana — District of US

Page 739

403 So.2d 739

Sharon W. LAMBERT and Donald Lambert v. MARYLAND CASUALTY COMPANY.

No. 10252.

Court of Appeal of Louisiana, Fourth Circuit.

June 15, 1981.

Rehearings Denied Sept. 17, 1981.

Klein & Rouse, Henry L. Klein, and Cecil M. Burglass, New Orleans, Arthur J. Lentini, Metairie, for plaintiffs-appellees.

Deutsch, Kerrigan & Stiles, Marian Mayer Berkett and Matt J. Farley, New Orleans, for defendant-appellant.

Fred Clegg Strong and Guy B. Scoggin, New Orleans, for intervenor-appellant.

Before SAMUEL, REDMANN, BOUTALL, SCHOTT and KLIEBERT, JJ.

SAMUEL, Judge.

Plaintiffs, Sharon W. Lambert and Donald G. Lambert, filed this suit against Maryland Casualty Company seeking $33,000,000 in damages caused by defendant's alleged wrongful attempt to take over and destroy their wholly owned corporation, Donald G. Lambert Contractor, Inc. Plaintiffs had personally guaranteed the indebtedness of the corporation to Maryland. The original petition alleged a conspiracy on the part of Maryland, The Bank of New Orleans & Trust Company (BNO), and Hibernia National Bank in New Orleans. The banks were not named as defendants in the original petition, but were added when Maryland's exception of nonjoinder of necessary parties was maintained by the trial judge. Defendants answered, denying any liability to plaintiffs.

Shortly before trial, judgment was rendered giving effect to a stipulation between plaintiffs and the defendant banks, dismissing the banks on all charges except the premature call of the notes owned by the corporation to them. Separate trials were ordered for the claims against Maryland and the banks.

After the trials were concluded, one judgment was rendered awarding plaintiffs $9,866,739.50 against defendant Maryland. The suit against BNO and Hibernia was dismissed.

Maryland appealed from that judgment. Plaintiffs also appealed insofar as the judgment dismissed the banks and allegedly failed to adequately compensate plaintiffs. However, plaintiffs subsequently dismissed their appeal. In addition, after rendition of judgment, the trustee in bankruptcy of plaintiffs' corporation sought to intervene in the trial court. The trustee's motion was denied by the trial judge, and the trustee appealed both as to the denial of the intervention and as to the judgment. Shortly before the date scheduled for argument in this court, plaintiffs filed a motion to dismiss the trustee's appeal. The motion was referred to the merits.

Plaintiffs' corporation was one of the largest highway construction companies in this state. Plaintiff, Donald Lambert, ¹ through his corporation, developed a close working relationship with Maryland, which eventually wrote all the corporation's public works bonds pursuant to R.S. 38:2241. In 1974 the corporation had approximately $30,000,000 in outstanding construction contracts bonded by Maryland.

During 1974 the corporation began to have financial problems, which plaintiffs' counsel attribute to slow cash flow resulting from high interest rates, excessive rain-caused work stoppages, increased oil prices, and a $13,000,000 retainage of progress payments by the State of Louisiana involving disputed contract payments.

The corporation reduced its outstanding indebtedness from $25,000,000 in late 1974 to approximately $9.5 million in October, 1975. In May, 1974 it was unable to continue to operate without additional cash. The two banks with which it had done business in the past, BNO and Hibernia, terminated the corporation's credit line and refused to lend more funds. At this time the corporation owed BNO $2,200,000 and Hibernia $547,000. ²

Also at this time, the corporation had in excess of $22,000,000 in uncompleted public works contracts. In order to allow it to stay in business, Maryland agreed to guarantee new BNO loans up to $2,000,000 upon condition that the corporation and plaintiffs individually (1) recognize that the assignment of contract balances executed in individual indemnity agreements to hold Maryland harmless against bond losses were "executory" and (2) the corporation and plaintiffs individually furnish other collateral to secure the new loan and the loans already made by BNO. This agreement was executed May 31, 1974.

The company continued to be unprofitable, ³ and Maryland guaranteed a $250,000 promissory note held by Hibernia to prevent it from calling the company's entire indebtedness. ⁴

During this period the corporation's other creditors began to demand payment, and in due course they made demands on Maryland under the payment portion of its public works bonds. The evidence is somewhat contradictory in this respect, but the record indicates demand letters in excess of $1,000,000 were received by Maryland, suits in excess of $300,000 were filed against the corporation and Maryland, and liens in excess of $500,000 were filed against the corporation's jobs. At the corporation's and plaintiffs' request, Maryland executed "release of lien bonds" to have these liens erased from the public records. As a result, the Louisiana Department of Highways released sums of money in its 125% lien reserve to the corporation, and Maryland's exposure accordingly was increased by the amount of the lien release bonds so furnished.

By August, 1975 the corporation again was in need of cash, and on August 20, 1975 the corporation and the individual plaintiffs executed an agreement with Maryland by which Maryland undertook to consider requests for cash advances up to $2,000,000 to be secured in part by the proceeds of a possible settlement of claims by the corporation against the Department of Highways. Maryland advanced $1.1 million under this agreement prior to October 1, 1975. ⁵ However, prior to the execution of this contract, the corporation had "rejected" a $2,000,000 settlement offer from the Department of Highways, with the result that the Department's attorney concluded all claims should be litigated.

In late September, 1975 the corporation had $10,000,000 in public works jobs unfinished, the bulk of which were represented by two jobs which the corporation had difficulty in completing. Maryland's outstanding liability continued to grow, and all signs indicated to Maryland's management that the corporation was beyond financial rehabilitation. Maryland consequently decided to discontinue increasing its liability and to claim from parties to contracts it had bonded for the corporation the outstanding progress payments and other balances owed on completed work.

On October 1, 1975 Maryland informed the corporation it had decided to write no additional public works bonds for it, to execute no further releases of lien bonds, to make no further cash advances, and to file with the Department of Highways and other public agencies letters notifying them of Maryland's claim to the contract balances by way of assignment, subrogation, or otherwise. On the same day Maryland delivered such a letter to the Department of Highways.

As a result of the October 1, 1975 letter, the corporation's creditors withheld payments owed it and the corporation was unable to function. Maryland offered to finance certain jobs on a limited basis, but the offer was refused.

On October 14, 1975 the corporation filed a petition under Chapter XI of the Federal Bankruptcy Act. ⁶ It was allowed to continue to operate its business as a Debtor in Possession without supervision of a trustee. Nevertheless, it was unsuccessful in perfecting the Chapter XI arrangement with its creditors, and made an unsuccessful attempt to convert to a corporate reorganization under Chapter X of the Bankruptcy Act. ⁷ On its own petition, the corporation then converted the proceeding to a straight bankruptcy.

Numerous suits, counter suits, and other proceedings in state and federal courts have resulted, two of which have been determined by this court. ⁸ One such proceeding has given rise to an exception of res judicata by Maryland.

Maryland contends the present suit states the same cause of action against it as that asserted by plaintiffs in their reconventional demand in the prior suit entitled "Bank of New Orleans & Trust Co., et al. v. Donald G. Lambert, et al." The reconventional demand was dismissed primarily because defendants' attorney did not appear for the trial. This court held the trial judge did not commit error by dismissing the suit although a letter had been written to the trial judge advising that counsel was unable to attend the trial, since a number of previous delays had been given counsel for various reasons. ⁹

In Louisiana res judicata (the plea is available under the provisions of Civil Code Article 2286) is stricti juris and a second suit is not barred when there is any doubt about the applicability of Article 2286. ¹⁰ It has been held that:

"A final judgment has the authority of res judicata only to those issues presented in the pleadings and conclusively adjudicated by the court, and where any doubt exists the second suit will be maintained." ¹¹

In Mitchell v. Bertolla, ¹² the Supreme Court summarized the law relating to the issue of "identity of cause" and noted that under civilian law a judgment of dismissal only bars relitigation of matters actually pleaded and adjudicated and, unlike the common law doctrine of collateral estoppel or estoppel by judgment, does not bar matters which might have been pleaded. The court (at page 292) made the following statement:

"We hold that the words 'cause of action' in C.C. 2286 are to be interpreted to mean 'cause', and we will look to civilian doctrine, if need be, to explain the meaning of 'cause.'

O'Quin described the prevailing view of cause in actions to nullify an instrument:

'... each of the vices is a separate cause, and therefore failure of the plaintiff in an attack on the ground of fraud will not bar a subsequent attack on the grounds of error or duress, or any other vice. This view has been adopted by practically all the modern commentators.' "...