Potomac Design, Inc. v. Eurocal Trading, Inc.

• Decision Date: 09 December 1993
• Docket Number: Civ. No. K-93-63.
• Citation: 839 F. Supp. 364
• Parties: POTOMAC DESIGN, INC. v. EUROCAL TRADING, INC., d/b/a Eurocal Slate Centers.
• Court: U.S. District Court — District of Maryland

839 F. Supp. 364

POTOMAC DESIGN, INC. v. EUROCAL TRADING, INC., d/b/a Eurocal Slate Centers.

Civ. No. K-93-63.

United States District Court, D. Maryland.

December 9, 1993.

Richard E. Schimel, Budow and Noble, Bethesda, MD, for plaintiff.

Michael McGowan, and John B. Kaiser, Landover, MD, for defendant.

FRANK A. KAUFMAN, Senior District Judge.

In May of 1987, Potomac Design,¹ a general contractor, (plaintiff) entered into a construction contract with Pedro and Inez Ceppa to build a house. Potomac ordered roofing slate from Eurocal Trading, Inc.² After moving into their home, the Ceppas experienced various problems with their roof, including water leakage and slates falling off the house.

In June of 1991, Pedro and Inez Ceppa sued Potomac, Eurocal, and Windproof Roofing Company³ in the Circuit Court for Montgomery County, Maryland. The Ceppa's alleged various theories against all or some of the defendants, including negligence, breach of contract, and breach of warranties in placing a faulty roof on their house. Windproof was the subcontractor which installed the roof and Eurocal was the manufacturer of the slate used in construction of the roof.

On August 13, 1991, Eurocal filed a Motion to Dismiss in the Circuit Court for Montgomery County, on the grounds that the court lacked personal jurisdiction over Eurocal. Although the Ceppas' responded with an Opposition to the Motion to Dismiss, Potomac never filed any document with regard to that motion. The state court granted Eurocal's motion to dismiss on December 27, 1991, because of lack of personal jurisdiction. Potomac Design did not appeal from the dismissal.

Subsequently, the Ceppas made a claim against Potomac which was resolved in their favor in binding arbitration in the amount of $98,585. A judgment for that amount in favor of the Ceppas was recorded in the Circuit Court for Montgomery County.

On January 7, 1993, Potomac filed the instant federal diversity action against Eurocal, alleging that the slate which Eurocal supplied was defective and seeking indemnification and/or contribution from Eurocal in the amount of $98,585. In response, Eurocal, contending that Potomac Design's action is precluded by the earlier state court determination of lack of personal jurisdiction, and alternatively, that, this court should in any event hold personal jurisdiction not present, has moved for dismissal of the within complaint. Disagreeing, Potomac Design asserts that this Court is not precluded from reaching the personal jurisdiction issue and that personal jurisdiction is present. For the reasons set forth in this opinion, Eurocal's pending motion will be denied.⁴

I. PRECLUSION

In deciding the preclusion issue, this Court is governed by preclusion principles established by Maryland courts. "`It is now settled that a federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.'" Alston v. Robinson, 791 F.Supp. 569, 577 (D.Md.1992), (quoting Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984)). The bar of preclusion is applicable under Maryland case law with regard to the issue of personal jurisdiction. Annapolis Urban Renewal Authority v. Interlink, Inc., 43 Md.App. 286, 292, 405 A.2d 313 (1979).⁵

Defendant Eurocal here contends that collateral estoppel bars this Court from considering whether it can exercise personal jurisdiction over Eurocal in Potomac's suit for indemnification. Maryland caselaw follows the definition of collateral estoppel, sometimes called issue preclusion,⁶ set forth in the Restatement (Second) of Judgments § 27, which states: "`When an issue of fact or law is actually litigated and determined by a valid final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.'" Cassidy v. Board of Education, 316 Md. 50, 62, 557 A.2d 227 (1989) (quoting Restatement (Second) of Judgments § 27).

Eurocal asserts that in the prior proceeding in the state court, the issue of whether a Maryland court could exercise personal jurisdiction over Eurocal was "actually litigated," and that therefore, this court is estopped from re-addressing herein the question of personal jurisdiction. However, the basis for personal jurisdiction was "actually litigated" only between Eurocal and the Ceppas — Potomac Design did not at any time join in litigation of that issue. Potomac and Eurocal were co-defendants in the prior suit and at no time in the state court did they proceed as adversaries, either in pleadings or otherwise.

Restatement (Second) of Judgments § 38 aids in assessing whether collateral estoppel (issue preclusion) applies in a suit where the present parties were formerly aligned on the same side.⁷ That section provides:

"Parties who are not adversaries to each other under the pleadings in an action involving them and a third party are bound by and entitled to the benefits of issue preclusion with respect to issues they actually litigate fully and fairly as adversaries to each other and which are essential to the judgment rendered."

(emphasis added). "Under this approach, coparties are bound by the determination of any issue that they in fact litigated as adversaries, even though no claim was advanced by either against the other." 18 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4450 (1981).

Illustration 1 of that Restatement section provides a useful example:

"A, the owner of a building, sues B, a gas utility, and C, a contractor doing repair work on the building, contending that through the negligence of both a gas line in the building was ruptured, resulting in an explosion that demolished the building. B and C each contend that he was not negligent and that the other was. If they have a full and fair opportunity to litigate these contentions, a judgment in favor of A against C but in favor of B is preclusive of the issue that B was not negligent in a subsequent action between C and B."

(emphasis added). This section suggests in the converse that if B and C do not make contentions as to the other's negligence, then that issue would be a proper subject for dispute in a subsequent action between B and C. In such a situation, B and C would not have litigated each other's negligence in the prior action, and thus would not be precluded from arguing that issue in a subsequent action.

Such a scenario presents essentially the same situation as is presently before this court. As to each other, Potomac and Eurocal made no contentions whatsoever in the state court concerning whether personal jurisdiction over Eurocal existed in a Maryland court. No cross-claims were brought in the prior suit by either against the other, nor was either required to bring against the other any cross-claims or be barred from doing so in the future. Under Maryland law, the assertion of cross-claims is permissive. See Maryland Rule 2-331(b) ("A party may assert as a cross-claim any claim that party has against a co-party ...") (emphasis added); see Oregon Ridge Dinner Theater, Inc. v. Hamlin, 253 Md. 462, 469, 253 A.2d 382 (1969) (the Rule "permits but does not require a defendant to assert a claim against another defendant"). As a result, Potomac and Eurocal "are bound here only by the determination of issues that they in fact litigated as adversaries." See Sullivan v. Easco Corp., 662 F.Supp. 1396, 1408 (D.Md.1987).⁸

Potomac Design contends that its relationship with Eurocal differed from that between Eurocal and the Ceppas.⁹ Potomac further argues that those claimed factual differences were not litigated in the Circuit Court for Montgomery County, and presently will support a finding of personal jurisdiction; and that Potomac should have an opportunity to present them in this case. This Court agrees.¹⁰

In addition, it is to be noted that the related doctrine of res judicata (claim preclusion) also does not preclude this court's consideration of personal jurisdiction.¹¹ Under Maryland principles of res judicata, "a judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action, and is conclusive, not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit." Rowland v. Harrison, 320 Md. 223, 229, 577 A.2d 51 (1990) (emphasis in the original). Arguably, under Maryland caselaw, res judicata may well operate as a broader procedural bar than does claim preclusion. However, because cross-claims are permissive under Maryland law, "a party who does not assert a cross-claim is not barred by res judicata in a subsequent action." American Industrial Leasing Co. v. Law, 458 F.Supp. 764, 769 (D.Md.1978) (interpreting a similar permissive cross-claim rule under West Virginia law) (citing Augustin v. Mughal, 521 F.2d 1215 (8th Cir.1975)).¹² Simply put, "a party who decides not to bring a permissive cross-claim will not be barred by res judicata, waiver, or estoppel from asserting it in a later action." 6 C. Wright, A. Miller and M. Kane, Federal Practice and Procedure § 1431 (1990).¹³

For all of the reasons set forth supra, this court concludes that under Maryland law, a Maryland court would not, in the within case, give preclusive effect, by way of collateral estoppel or res judicata, to the prior dismissal of Eurocal in the Circuit Court for Montgomery County for lack of personal jurisdiction.

II. PERSONAL JURISDICTION

The material facts relevant to personal jurisdiction in the instant case are not in dispute. Eurocal advertised its slate products in Roofer magazine, a nationally distributed magazine available in Maryland. After reading one of the advertisements, Potomac's president called Eurocal to inquire whether Eurocal...