New Crawford Valley, Ltd. v. Benedict, 92CA0255
| Decision Date | 25 March 1993 |
| Docket Number | No. 92CA0255,92CA0255 |
| Citation | 877 P.2d 1363 |
| Parties | RICO Bus.Disp.Guide 8355 NEW CRAWFORD VALLEY, LTD., a Colorado limited partnership, Plaintiff-Appellant, v. Malcolm H. BENEDICT and David R. Allen, Defendants-Appellees. . III |
| Court | Colorado Court of Appeals |
Holley, Albertson & Polk, P.C., Eric E. Torgersen, Golden, for plaintiff-appellant.
Gibson, Dunn & Crutcher, Craig R. Carver, Monica T. Langley, Denver, for defendants-appellees.
Opinion by Judge CRISWELL.
Plaintiff, New Crawford Valley, Ltd., appeals the trial court's judgment dismissing the claims asserted by it against the defendants, Malcolm H. Benedict and David R. Allen. We affirm in part, reverse in part, and remand for further proceedings.
Prior to commencing this action, plaintiff, a limited partnership, had obtained a judgment against Benedict Nuclear Pharmaceuticals, Inc., a publicly held corporation (the corporation), and one of its subsidiaries based upon the corporation's execution of a note payable to plaintiff, secured by a deed of trust encumbering land sold by plaintiff to the corporation. In that litigation, the court found that the corporation, through its two principal officers and directors, who are defendants here, had engaged in a fraudulent scheme to have the corporation evade its obligations under the promissory note and to deprive plaintiff of its interest in the secured property. Hence, a judgment for damages was entered against the corporation and its subsidiary in an amount in excess of $1,000,000 and those parties were directed to reconvey the real property to plaintiff.
Thereafter, plaintiff instituted this action against the individual defendants who, as noted, were the principal officers and directors of the corporation during the relevant period. Its complaint alleged that defendants had committed fraud, had engaged in a fraudulent conveyance, had entered into a civil conspiracy, had breached the fiduciary duty owed to plaintiff as one of the corporation's creditors, and had violated the Colorado Organized Crime Control Act (COCCA), § 18-17-101, et seq., C.R.S. (1986 Repl. Vol. 8B).
These claims were based, in part, on plaintiff's allegations that defendants had carried out four fraudulent schemes by: (1) pledging 300,000 shares of stock to a lender as collateral for a line of credit to the corporation, but intentionally deceiving the corporation's agent so as to receive duplicate certificates for the pledged shares; (2) requiring corporate employees to sign promissory notes in the amounts of their wages so that the corporation could evade its lawful income tax obligations; (3) carrying out the scheme, described in the court's findings and conclusions in the previous litigation, to deprive plaintiff of its interest in the realty that was the subject of that suit; and (4) diverting funds that were due to the corporation, which was then insolvent, to another corporation solely controlled by them. In addition, plaintiff alleged that, throughout these defendants' association with the corporation, they voted themselves unapproved loans (most of which were never repaid), excessive salaries and bonuses, warrants and options to acquire corporate stock at a fraction of its market price, and other personal perquisites, all to the detriment of the corporation's creditors and its shareholders.
In response to this complaint, defendants filed a motion to dismiss, asserting, among other things, that the common law fraud and civil conspiracy claims alleged, being based upon the transactions that were the subject of the previous litigation, were barred by the previous judgment against the corporation and that the remaining claims were not pleaded with sufficient specificity. The trial court granted defendants' motion and entered its judgment of dismissal without providing to plaintiff an opportunity to amend its complaint.
In doing so, it held that, to the extent that the plaintiff's claims relied upon any of the transactions and occurrences which formed the basis for the previous judgment against the corporation and the subsidiary, the doctrine of res judicata and its prohibition against "splitting" a cause of action barred the assertion of like claims against the two defendants here. The court also concluded that, to the extent that any claims asserted were not barred by this doctrine, they were not well pleaded.
The doctrine of res judicata precludes the assertion of a claim if it was or could have been asserted in previous litigation that resulted in a determination on the merits. Pomeroy v. Waitkus, 183 Colo. 344, 517 P.2d 396 (1973). Hence, if a claim based upon the same transaction is not asserted in previous litigation, it cannot be prosecuted in a subsequent lawsuit. Shaoul v. Goodyear Tire & Rubber, Inc., 815 P.2d 953 (Colo.App.1990). See Denver v. Block 173 Associates, 814 P.2d 824 (Colo.1991).
However, res judicata will constitute such a bar only if, as between the prior and present suits, there is an: (1) identity of subject matter; (2) identity of cause of action; (3) identity of parties to the action; and (4) identity of capacity in the persons for which, or against whom, the claim is made. State Engineer v. Smith Cattle, Inc., 780 P.2d 546 (Colo.1989).
Here, the trial court concluded that, because plaintiff had previously received a judgment against the corporation and its subsidiary, based on the same series of transactions upon which reliance was placed, in part, in the instant complaint, but had not joined defendants as parties in that previous litigation, plaintiff could not now sue defendants in an independent action. To do so, it concluded, would constitute the splitting of a single claim.
We conclude, however, that, because there was no identity of defendants between the first lawsuit and the present one, the doctrine of res judicata cannot properly be applied to the claims asserted against the individual defendants in this case.
The extent to which the successful prosecution of a claim in the first action will bar the assertion of a kindred claim in a later action depends, among other things, upon whether the party against whom the second claim is being asserted was a party to the first action. Hence:
A judgment against one person liable for a loss does not terminate a claim that the injured party may have against another person who may be liable therefor.
Restatement (Second) of Judgments § 49 at 34 (1982) (emphasis supplied).
This is so because:
When a person suffers injury as the result of the concurrent or consecutive acts of two or more persons, he has a claim against each of them. If he brings an action against one of them, he is required to present all the evidence and theories of recovery that might be advanced in support of the claim against the obligor.... If he recovers judgment, his claim is 'merged' in the judgment so that he may not bring another action on the claim against the obligor whom he has sued. But the claim against others who are liable for the same harm is regarded as separate. Accordingly, a judgment for or against one obligor does not result in merger or bar of the claim that the injured party may have against another obligor.
The injured person has a similar option when the conduct of the actual wrongdoer is legally chargeable to more than one person, as when both a servant and his master are liable for the acts of the servant under the principle of respondeat superior.
Restatement (Second) of Judgments § 49 comment a at 34 (1982). See also Pomeroy v. Waitkus, supra, 183 Colo. 344, 350, 517 P.2d 396, 399 ().
Thus, a judgment against one partner does not preclude the assertion of a claim, based on the same transaction, against another partner. Carter v. Forstrom, 80 Or.App. 213, 722 P.2d 23 (1986). Likewise, a judgment against a borrower, based on a promissory note, does not preclude an action against the borrower's lawyers for fraud. HGN Corp. v. Chamberlain, Hrdlicka, White, Johnson, 642 F.Supp. 1443 (N.D.Ill.1986). And, a judgment by a securities broker against one of the parties liable on an account will not preclude the assertion of a claim against another party liable on the same account. Gill & Duffus Services, Inc. v. A.M. Nural Islam, 675 F.2d 404 (D.C.Cir.1982).
Further, for purposes of the doctrine of res judicata, a corporation is treated as a legal entity separate from and independent of its officers, directors, and stockholders. See Restatement (Second) of Judgments § 59 (1982). Therefore, a judgment against a corporation will not preclude the assertion of claims against that corporation's directors, even though all claims are based upon the same incidents. Minton v. Cavaney, 56 Cal.2d 576, 15 Cal.Rptr. 641, 364 P.2d 473 (1961).
The alleged personal liability of the defendants here arises out of their individual actions undertaken while they were officers and directors of the corporation. The corporation was liable for those actions under the precepts of respondeat superior. A judgment against the corporate master under this doctrine, however, does not preclude the assertion of like claims, based upon the same acts, against defendants themselves, who are individually liable for their personal actions.
The result in Shaoul v. Goodyear Tire & Rubber, Inc., supra, is not inconsistent with our conclusion here. There, plaintiff's claim had been rejected in the first action. Hence, he was precluded from asserting a like claim against a party who, while not joined in the first action was, nevertheless, in privity with such a party. See Pomeroy v. Waitkus, supra; Restatement (Second) of Judgments § 51 (1982).
We conclude, therefore, that the trial court erred in dismissing plaintiff's common law fraud and civil conspiracy claims which were based on...
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