McBroom v. Al-Chroma, Inc.

• Decision Date: 06 May 1986
• Docket Number: No. C0-85-2298,AL-CHROM,INC,C0-85-2298
• Parties: Mike McBROOM, d.b.a. McBroom Construction, Appellant, v.and Michael Peters, Respondents.
• Court: Minnesota Court of Appeals

Page 369

386 N.W.2d 369

Mike McBROOM, d.b.a. McBroom Construction, Appellant, v. AL-CHROMA, INC. and Michael Peters, Respondents.

No. C0-85-2298.

Court of Appeals of Minnesota.

May 6, 1986.

Syllabus by the Court

1. Appellant's action against respondent corporation is barred by collateral estoppel.

2. Appellant's action against the president of respondent corporation is barred by collateral estoppel.

3. The trial court did not abuse its discretion in awarding defendant costs and attorney's fees pursuant to Minn.Stat. Sec. 549.21.

John E. Mack, New London, for appellant.

Eric Magnuson, John B. Lunseth, III, Jeanne H. Unger, Rider, Bennett, Egan & Arundel, Minneapolis, for respondents.

Heard, considered, and decided by WOZNIAK, P.J., and FOLEY and LANSING, JJ.

OPINION

WOZNIAK, Judge.

Mike McBroom, d/b/a McBroom Construction, appeals from the trial court's dismissal, on the grounds of collateral estoppel, of two actions commenced by him against respondents Al-Chroma, Inc. and Michael Peters, and from an order awarding defendants costs and attorneys' fees. We affirm.

FACTS

McBroom is a professional contractor in the business of constructing and color coating tennis courts. Respondent Al-Chroma, Inc., a Wisconsin corporation, sells tennis court color coating. Respondent Michael Peters is the president of Al-Chroma. These lawsuits arise out of the sale of color coating to McBroom by Al-Chroma in 1978.

In July 1980, before the commencement of either of the two lawsuits now before this court, Al-Chroma brought suit against McBroom in the circuit court of Portage County, Wisconsin, to recover the unpaid balance on a note McBroom had given as consideration for goods and services purchased from Al-Chroma, including the color coatings sold in 1978. In his answer, McBroom alleged as an affirmative defense that the goods and services were defective.

The Wisconsin suit was tried to the court in Portage County in December of 1983. McBroom's attorney appeared to defend the action. There was considerable testimony by McBroom regarding his allegations that the cracking and peeling of numerous tennis courts he resurfaced in 1978 were caused by defective color coating purchased from Al-Chroma. The court found, however, that there was insufficient evidence to support the affirmative defense that the color coating was defective, and found McBroom liable for the unpaid balance on the note.

In August 1982, after the Wisconsin action was commenced but before it went to trial, McBroom commenced one of the actions now before this court, McBroom v. Al-Chroma, Inc., in the district court for Kandiyohi County, Minnesota. In his complaint, McBroom alleged that the color coating sold by Al-Chroma was defective.

Following entry of judgment in the Wisconsin action, Al-Chroma sought to domesticate that judgment in Minnesota. McBroom brought a motion in Kandiyohi County District Court to vacate the Wisconsin judgment on the grounds that the Wisconsin court lacked personal jurisdiction over McBroom and that the judgment was therefore not entitled to full faith and credit. The motion was denied and the Wisconsin judgment was given full faith and credit in Minnesota in September 1984.

In February 1985, McBroom commenced the second lawsuit now before this court, McBroom v. Peters. The defendant in this action, Michael Peters, was at all relevant times president of Al-Chroma, Inc., and the substance of the complaint is virtually identical to that in McBroom v. Al-Chroma, Inc.

In May 1985, Al-Chroma and Peters moved to dismiss both actions commenced by McBroom on the grounds that McBroom was estopped from relitigating the issue already decided by the Wisconsin court. The district court, Kandiyohi County, granted defendants' motion and dismissed both cases, and assessed $200 in costs and attorney's fees against McBroom.

ISSUES

1. Is appellant's action against Al-Chroma, Inc. barred by collateral estoppel?

2. Is appellant's action against Michael Peters barred by collateral estoppel?

3. Did the trial court abuse its discretion in awarding defendant costs and attorney's fees pursuant to Minn.Stat. Sec. 549.21?

ANALYSIS

1. (a) This court must apply Wisconsin law to determine whether the two actions now before this court are barred by the res judicata effect of the Wisconsin judgment. In Durfee v. Duke, 375 U.S. 106, 84 S.Ct. 242, 11 L.Ed.2d 186 (1963), the United States Supreme Court held that the full faith and credit clause of the United States Constitution (article IV, Sec. 1):

generally requires every State to give to a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it.

Id. at 109, 84 S.Ct. at 244; see also Matson v. Matson, 333 N.W.2d 862, 867 (Minn.1983) (adopting Durfee rule); Restatement (Second) of Conflict of Laws Sec. 95, comments a & g (1971) (rendering state's law of res judicata applies to judgments being enforced under the full faith and credit clause).

b. The doctrine of res judicata has two aspects. The first, merger and bar, operates to preclude a subsequent suit on the same cause of action which has already been determined by a previous judgment, regardless of what issues were actually raised or litigated in the previous suit. The other aspect of res judicata, the doctrine of collateral estoppel, operates to preclude relitigation of the same issues which were actually litigated and necessary to the determination of a previous judgment, regardless of whether the previous suit was predicated on the same cause of action. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d (1979); Hauser v. Mealey, 263 N.W.2d 803, 806 (Minn.1978). These hornbook principles have been applied by the Wisconsin courts. See e.g., DePratt v. West Bend Mutual Insurance Co., 113 Wis.2d 306, 310, 334 N.W.2d 883, 885 (1983); Heinz Plastic Mold Co. v. Continental Tool Corp., 114 Wis.2d 54, 337 N.W.2d 189 (Wis.Ct.App.1983). ¹ Because these cases involve the same issues, but different causes of action, the applicable principle is collateral estoppel.

Under collateral estoppel, McBroom is precluded from making a claim against Al-Chroma for damages resulting from the allegedly defective product, since the issue of product defectiveness was previously litigated by McBroom as a defense to Al-Chroma's action on the note in Wisconsin.

Normally, where a defendant does not interpose a counterclaim even though he is entitled to do so, he is not thereby precluded from subsequently maintaining a second cause of action against the plaintiff on the cause of action which could have been set up as a counterclaim. Restatement of Judgments Sec. 58 (1942). ² The rationale for this rule is that the defendant should have the option of either interposing a claim as a counterclaim or of bringing a separate action against the plaintiff, and should not be required to assert his claim at the time and in the forum chosen by the plaintiff. See Restatement (Second) of Judgments Sec. 22, comment b (1982). However, comment c to section 58 of the Restatement of Judgments provides:

Where the same facts constitute a ground of defense to the plaintiff's claim and also a ground for a counterclaim, and the defendant alleges these facts as a defense but not as a counterclaim, and after litigation of the defense judgment is given for the plaintiff, the defendant is precluded from maintaining an action against the plaintiff based on these facts. This is in accordance with the rule as to collateral estoppel stated in Sec. 68, that where a question of fact essential to a judgment is actually litigated and determined by the judgment, the determination is conclusive between the parties in a subsequent action on a different cause of action.

(Emphasis added.) Illustration 7 to comment c provides an example of how this rule works in operation:

7. A, a physician, brings an action against B for medical services rendered to B. B in his answer alleges that A was negligent and that the services were of no value. After trial of this issue judgment is given for A. B is precluded from thereafter maintaining an action against A for damages caused to him by A's alleged malpractice. ³

Illustration 7 is similar to this case. Al-Chroma ("A") sued McBroom ("B") for nonpayment of a note. McBroom in his answer alleged that the product was defective and not worth the price charged. After trial of this issue, judgment was given for Al-Chroma. McBroom is precluded from thereafter maintaining an action against Al-Chroma for damages caused by the allegedly defective product.

Under the doctrine of collateral estoppel, for an issue to be conclusively determined by a judgment for purposes of a subsequent action on a different cause of action, that issue must have been (a) actually litigated, and (b) necessary to the determination of the previous action. Both requirements are met here.

There can be no question that the issue of product defectiveness was actually litigated in the Wisconsin action. Testimony and evidence regarding the cracking and peeling of the tennis courts occupies 74 pages of trial transcript. The Wisconsin trial court expressly held...