Modiri v. 1342 Restaurant Group, Inc.

• Decision Date: 10 August 2006
• Docket Number: No. 04-CV-1386.,04-CV-1386.
• Citation: 904 A.2d 391
• Parties: FARZAD MODIRI, et al., Appellants, v. 1342 RESTAURANT GROUP, INC., Appellee.
• Court: D.C. Court of Appeals

Page 391

904 A.2d 391

FARZAD MODIRI, et al., Appellants, v. 1342 RESTAURANT GROUP, INC., Appellee.

No. 04-CV-1386.

District of Columbia Court of Appeals.

Argued March 16, 2006.

Decided August 10, 2006.

Robert W. Mance for appellant.

Richard E. Schimel, Bethesda, MD, for appellee.

Before FARRELL, RUIZ, and FISHER, Associate Judges.

FISHER, Associate Judge:

This case arises from breach of a lease of real property located at 1342 G Street, N.W. After conducting a non-jury trial, Judge Rankin entered judgment against appellant, a sublessee, for nearly half a million dollars in damages and fees. Appellant does not challenge the trial court's interpretation of the various leases or its calculation of damages. He contends, rather, that the court improperly applied the doctrine of collateral estoppel. Finding no legal error or abuse of discretion, we affirm.

I. Procedural Background

The property in question is owned by TomKat Limited Partnership, whose predecessor in interest leased it to Creative Hairdressers, Inc. Creative Hairdressers sublet the premises in their entirety to Benson J. Fischer, who assigned his interest to 1342 Restaurant Group, Inc., the appellee in this case. Appellee, in turn, sublet the first floor to a restaurant known as Katy's Kitchen and the second and third floors to Michael Modiri, the appellant.

Modiri's sublease specified that he was to use the premises for a therapeutic massage facility. According to appellant, he signed the lease at the request of his girlfriend, Ms. Lee, who did not have the necessary credit. Appellant claimed that he lived and worked in California, and that Ms. Lee ran the business, which the parties sometimes referred to as a tanning parlor—Tan Q. Nevertheless, Ms. Lee's name does not appear on the lease, nor was there any evidence that appellant Modiri had sublet the premises to Ms. Lee.

On February 7, 2001, TomKat Limited sent Creative Hairdressers notice that it was in default of the master lease, alleging, in part, that Tan Q was being used for solicitation of prostitution. Soon thereafter, TomKat filed suit to terminate the lease of Creative Hairdressers. TomKat, Inc. v. Creative Hairdressers, Inc., No. LT-10689-01. On May 10, 2001, Judge Turner, sitting in the Landlord and Tenant Branch of the Superior Court, found that "the spa was a front for prostitution" and concluded that Creative Hairdressers was in default of the master lease. Shortly thereafter, Judge Turner granted possession of the entire premises to TomKat, evicting Creative Hairdressers, Benson Fischer, 1342 Restaurant Group, Katy's Kitchen, and appellant. We affirmed that judgment on appeal. Creative Hairdressers, Inc. v. Tomkat, Inc., Nos. 01-CV-798, etc. (D.C. May 13, 2003).

Under its sublease with Creative Hairdressers, appellee 1342 Restaurant Group became legally responsible for the damages and fees owed by Creative Hairdressers to TomKat. Appellant Modiri's separate lease provided that he, in turn, was obligated to reimburse appellee for those damages and fees. Appellee thus brought the instant action against Modiri to recover those sums and also to assert its own claims for damages and attorneys' fees resulting from Modiri's breach of his sublease. After a bench trial, Judge Rankin entered judgment in favor of the appellee in the amount of $494,055.35,¹ plus the costs of maintaining the action. In so ruling, Judge Rankin held that Modiri was collaterally estopped from asserting that the property was not used for purposes of prostitution, as that issue had been decided when TomKat sued Creative Hairdressers in the Landlord and Tenant Branch of Superior Court. Relitigation of that question was barred by the doctrine of non-mutual offensive collateral estoppel.²

II.

A. Legal Principles and Standard of Review

The doctrine of collateral estoppel, also known as issue preclusion,

renders conclusive in the same or a subsequent action determination of an issue of fact or law when (1) the issue is actually litigated and (2) determined by a valid, final judgment on the merits; (3) after a full and fair opportunity for litigation by the parties or their privies; (4) under circumstances where the determination was essential to the judgment, and not merely dictum.

Davis v. Davis, 663 A.2d 499, 501 (D.C. 1995) (quoting Washington Med. Ctr. v. Holle, 573 A.2d 1269, 1283 (D.C.1990)). Whether the foundational requirements for applying this doctrine have been met presents a legal issue which we decide de novo. Davis, 663 A.2d at 501.

Collateral estoppel may be used offensively or defensively. "Offensive use of collateral estoppel occurs when a plaintiff seeks to foreclose a defendant from relitigating an issue the defendant has previously litigated unsuccessfully in another action against the same or a different party." United States v. Mendoza, 464 U.S. 154, 159 n. 4, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984). When one who was not a party to the original suit invokes collateral estoppel to prevent relitigation of an issue by a party to the original suit or his privy,³ application of the doctrine is called "non-mutual." See Blonder-Tongue Labs., Inc. v. University of Ill. Found., 402 U.S. 313, 349-50, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971) (overruling a prior decision requiring mutuality of parties in order to apply doctrines of res judicata and collateral estoppel). In some cases, such as this one, the doctrine is used both offensively and non-mutually—"non-mutual offensive collateral estoppel." In this brand of estoppel, "a plaintiff seeks to estop a defendant from relitigating the issues which the defendant previously litigated and lost against another plaintiff." Ali Baba Co. v. WILCO, Inc., 482 A.2d 418, 421-22 (D.C. 1984). See also Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329-31, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979) (approving the offensive use of issue preclusion by a non-party to a prior lawsuit conditioned on a showing of fairness); 18 JAMES WM. MOORE, MOORE'S FEDERAL PRACTICE § 132.04[2][c][iii] at p. 132-162 (3rd ed.2006) (using the term "non-mutual offensive issue preclusion" to describe the doctrine approved in the Parklane Hosiery decision).

Proper application of non-mutual offensive collateral estoppel requires a two-step inquiry. In the first step, the trial court must determine whether a case meets the traditional requirements for invoking collateral estoppel. As noted, this is a decision we review de novo. See Davis, 663 A.2d at 501. However, we apply non-mutual offensive collateral estoppel "with some caution," Newell v. District of Columbia, 741 A.2d 28, 36 (D.C. 1999), because use of the doctrine in this manner presents additional "issues relating to the potential unfairness to a defendant. . . ." Ali Baba Co., 482 A.2d at 422. See Parklane Hosiery, 439 U.S. at 329-31, 99 S.Ct. 645 (citing as examples of potential unfairness cases where plaintiffs adopt a piecemeal litigation strategy, cases where a defendant has little incentive to defend the first action, situations where there are inconsistent judgments, and situations where the defendant has procedural protections available in the second case that were not available in the original action). To guard against unfairness in this special context, the trial court adds a second step to its inquiry and considers the fairness of applying collateral estoppel to the facts of the case. See Ali Baba Co., 482 A.2d at 423. We review the resolution of this second inquiry under an abuse of discretion standard so as "to grant trial courts broad discretion to determine when [collateral estoppel] should be applied." Parklane Hosiery, 439 U.S. at 331, 99 S.Ct. 645; see Ali Baba, 482 A.2d at 422 (endorsing the Parklane approach of granting trial courts broad discretion).

Using this two-tiered approach in Udebiuwa v. District of Columbia Bd. of Med., 818 A.2d 160 (D.C.2003), we first concluded that the issue in question was actually litigated in a previous action, that it was determined by a valid and final judgment, and that it was essential to that judgment. Id. at 163. We then considered whether the "other conditions" outlined in Parklane Hosiery had been met and concluded that there had been no abuse of discretion in applying non-mutual offensive collateral estoppel. Id. at 163-64. See also In re Yanke, 225 B.R. 428, 435-36 (Bankr. D.Minn.1998) (applying Minnesota collateral estoppel law and requiring both the basic elements of collateral estoppel and a fairness inquiry); Preferred Am. Ins. v. Dulceak, 302 Ill.App.3d 990, 235 Ill.Dec. 974, 706 N.E.2d 529, 532 (1999) (inquiring whether "the minimum elements of the doctrine are satisfied and it is clear that no unfairness will result to the party being estopped" (emphasis supplied)); DeLisle v. Avallone, 117 N.M. 602, 874 P.2d 1266, 1270 (Ct.App.1994) ("When the movant has made a prima facie showing [establishing the foundational requirements for applying collateral estoppel], the trial court must consider the countervailing equities including, but not limited to, prior incentive for vigorous defense, inconsistencies, procedural opportunities, and inconvenience of forum . . . ." (quoting Silva v. State, 106 N.M. 472, 745 P.2d 380, 384 (1987), and citing Parklane Hosiery, 439 U.S. at 329-30, 99 S.Ct. 645)).

B. The Foundation for Applying Collateral Estoppel

When ensuring that the foundational requirements of collateral estoppel have been met, we apply the test quoted above and consider whether:

(1) the issue [was] actually litigated and (2) determined by a valid, final judgment on the merits; (3) after a full and fair opportunity for litigation by the parties or their privies; (4) under circumstances where the determination was essential to the judgment, and not merely dictum.

Davis, 663 A.2d at 501 (internal citations omitted). The first, second, and fourth elements of this test are easily satisfied. The issue of whether prostitution was taking place on the premises was actually...