Laufer v. Westminster Brokers, Ltd., 86-831.

• Decision Date: 19 October 1987
• Docket Number: No. 86-831.,86-831.
• Citation: 532 A.2d 130
• Parties: Steven Z. LAUFER, Appellant, v. WESTMINSTER BROKERS, LTD., Appellee.
• Court: D.C. Court of Appeals

532 A.2d 130

Steven Z. LAUFER, Appellant, v. WESTMINSTER BROKERS, LTD., Appellee.

No. 86-831.

District of Columbia Court of Appeals.

Argued April 22, 1987.

Decided October 19, 1987.

William E. Rollow, for appellant. William W. Taylor, Washington, D.C., also entered an appearance for appellant.

Richard J. Medalie, with whom Alvin Friedman, Washington, D.C., was on brief, for appellee.

Before BELSON and TERRY, Associate Judges, and NEBEKER, Associate Judge, Retired.^*

TERRY, Associate Judge:

On April 3, 1985, a judgment was entered against Steven Laufer in favor of Westminster Brokers, Ltd., a British corporation, by the High Court of Justice, Queen's Bench Division, in London, England. The judgment was in the amount of $173,062.99 (or the sterling equivalent at time of payment) plus costs. A few weeks later Westminster filed suit in the Superior Court of the District of Columbia to enforce the English judgment.¹ In due course the Superior Court granted Westminster's motion for summary judgment on its claim, dismissed Laufer's two counterclaims, and entered final judgment for Westminster in the full amount of the English judgment, plus interest from the date of the English judgment, costs in the English proceeding, and costs in the American proceeding. We affirm the judgment of the Superior Court in all respects.

I. FACTUAL BACKGROUND²

In early 1982 appellant Laufer was attempting to purchase a luxury resort hotel in Jamaica known as Dragon Bay. In an effort to raise capital, he met in London with J.B. Meachem, a solicitor representing Westminster Brokers, Ltd., a British corporation engaged in the buying and selling of business opportunities. Laufer agreed to pay Westminster a commission of five percent, plus expenses reasonably incurred, for Westminster's services in finding investors. Westminster agreed, in turn, to seek an investor who would supply the $3.5 million which Laufer needed to complete his purchase of Dragon Bay by June 30, 1982. The financing was to be secured by a first mortgage on the hotel property.³ Westminster was unable, however, to find anyone who could provide this amount by June 30; consequently, Laufer had to pay the sellers of Dragon Bay $250,000 to extend the time for closing the sale.

Finally, in December 1982, Westminster notified Laufer that it had located two potential investors, Prince Alfonso Hohenlohe and Thomas Elek, both of whom were principals of International Marbella Club, S.A. ("IMC"), a Liechtenstein corporation. Westminster portrayed IMC as a highly experienced, financially stable owner and manager of luxury hotels throughout the world, including the Marbella Club in Marbella, Spain, the Marbella Club in Manila, the Philippines, and the Marbella Club in Sharjah, United Arab Emirates. Laufer alleged below that he agreed to do business with IMC in reliance on Westminster's representations concerning IMC's financial stability and its experience in hotel management. In addition, he secured the participation of Financial Services, Inc. ("FSI"), a Virginia corporation of which he is the sole beneficial owner. FSI is the parent company of a wholly owned subsidiary, SSI (Cayman), Inc. ("SSI"), a Cayman Islands corporation. Once the purchase of Dragon Bay was completed, title to the hotel was to be vested in SSI.

On February 22, 1983, Laufer and IMC entered into a fifteen-page investment and management contract for Dragon Bay. Included in this contract was a provision that IMC would lend FSI $3.2 million, to be secured by a first mortgage on the property.⁴ IMC was given the exclusive right to manage Dragon Bay for ten years as well as a one-year option to purchase what amounted to half of SSI. Laufer and SSI agreed to guarantee full repayment of the loan, with interest, but Laufer's guarantee was subject to a fifty percent reduction in the event that IMC exercised its option.⁵ On March 30, after other implementing agreements were completed, IMC disbursed the money to FSI, which turned it over to its wholly owned subsidiary, SSI, in order to complete the purchase of Dragon Bay.

Westminster then sought to collect the five percent commission that Laufer owed it under their earlier contract. Laufer, "while denying that he had any precise legal obligation, nonetheless agreed he had a moral obligation to pay a reasonable commission."⁶ Accordingly, on July 21, 1983 (see note 3, supra), Laufer agreed to pay Westminster $162,500.⁷ In December 1983 he made a partial payment of $23,400.

Meanwhile, back at Dragon Bay, the situation began to deteriorate rapidly. IMC proved to be utterly inept at managing the hotel, which had less than fifteen percent occupancy, substandard service, and no comprehensive marketing plan. Furthermore, IMC failed to provide Laufer with a financial statement by the agreed-upon date. When the statement finally appeared, it revealed that IMC had no assets, owned no hotels, and was managing only one Marbella Club (in the United Arab Emirates), which was operating at a loss. Consequently, Laufer refused to pay Westminster any more money.

Westminster then sued Laufer on the contract in the London court. Laufer was personally served, was represented in court by London counsel, and defended against Westminster's claim on the merits. On April 3, 1985, the court entered judgment against Laufer for $173,062.99 ($160,000 plus interest) and costs. Laufer did not note an appeal in the English courts, nor did he take action to stay the proceedings or to set aside the judgment based on any alleged fraud by Westminster.

When Westminster sought enforcement of its English judgment in the Superior Court of the District of Columbia, Laufer asserted in defense that the judgment had been obtained by fraud. With his answer raising this defense he filed two counterclaims against Westminster alleging the same fraud, which he said he had not discovered until after the English judgment had been entered. Judge Kessler of the Superior Court granted Westminster's motion for summary judgment on its complaint, ruling that Laufer's claim was one of intrinsic fraud, which would not justify a refusal to enforce the English judgment.⁸ The judge concluded that Laufer should have either raised his claim of fraud in the English proceedings as a defense to Westminster's action on the contract or returned to the English courts and moved to set aside the judgment.

About two months later, Judge Kessler also entered an order dismissing Laufer's counterclaims. In the meantime, however, Laufer had moved for leave to file an amended answer and counterclaim. Judge Kessler, although expressing "substantial doubt about the viability of [Laufer's] counterclaims," granted him leave to file. Westminster then moved to dismiss the amended counterclaims under Super.Ct. Civ.R. 12(b)(6), and Judge Nunzio granted that motion. After an appeal by Laufer was dismissed as premature,⁹ Judge Hannon entered a final judgment in favor of Westminster.

II. LAUFER'S DEFENSE TO WESTMINSTER'S CLAIM

Both parties agree that the only type of fraud that may justify non-enforcement of an otherwise valid judgment of any court of competent jurisdiction, including a foreign court, is extrinsic fraud.¹⁰ This principle was established more than a hundred years ago in United States v. Throckmorton, 98 U.S. (8 Otto) 61, 25 L.Ed. 93 (1878). The United States filed suit in Throckmorton to set aside two judgments on the ground that they had both been obtained by fraud. The Supreme Court, in affirming the dismissal of the suit, held that "many rights originally founded in fraud become . . . no longer open to inquiry in the usual and ordinary methods."

Of this class are judgments and decrees of a court deciding between parties before the court and subject to its jurisdiction, in a trial which has presented the claims of the parties, and where they have received the consideration of the court.

Id. at 65. After giving several examples of the types of fraud which would justify setting aside a judgment, all of them involving fraud or deception in the conduct of the litigation itself, rather than fraud affecting the merits of the underlying claim, id. at 65-66, the Court announced the general rule which has been followed in countless cases ever since:

[T]he acts for which a court of equity will on account of fraud set aside or annul a judgment or decree, between the same parties, rendered by a court of competent jurisdiction, have relation to frauds, extrinsic or collateral, to the matter tried by the first court, and not to a fraud in the matter on which the decree was rendered.

Id. at 68 (emphasis added); accord, e.g., Berman v. Diamond, 90 U.S.App.D.C. 327, 328, 196 F.2d 590, 591 (1952) (distinguishing between "fraud in the transaction upon which the New York action was based" and "fraud practiced upon the New York court in the judicial process").

Laufer asserts that Westminster led him to believe that IMC was "an experienced, financially stable, internationally renowned operator and owner of luxury hotels," which was not true, and that because of these misrepresentations he was prevented from fully arguing and defending his case on the merits in the English court. Thus, he argues, this is a case of extrinsic fraud because there was no "real contest"¹¹ in the Queen's Bench proceeding. Judge Kessler held, however, and we agree, that the fraud which Laufer alleged as a defense below was intrinsic fraud, because he asserted only that Westminster had fraudulently withheld certain information on which he could have relied to defend against Westminster's action on the contract. Laufer's claim that Westminster "`withheld' facts amounts to nothing more than a complaint that [Westminster] did not help [him] prove [his] case, and this certainly does not amount to `extrinsic' fraud by any of the traditional definitions." Goodwin v. Home Buying Investment Co., 352 F.Supp. 413, 415 (D.D.C. 1973) (citation omitted).

In litigation one of ...