Zikofsky v. MARKETING 10, INC., 4D04-1029.

• Decision Date: 25 May 2005
• Docket Number: No. 4D04-1029.,4D04-1029.
• Citation: 904 So.2d 520
• Parties: Dieter ZIKOFSKY, Appellant, v. MARKETING 10, INC., a/k/a (or successor by merger) Robby Vapor Systems, Inc., Elmer Strauss, individually, and Fran Strauss, individually, Appellees.
• Court: Florida District Court of Appeals

904 So.2d 520

Dieter ZIKOFSKY, Appellant, v. MARKETING 10, INC., a/k/a (or successor by merger) Robby Vapor Systems, Inc., Elmer Strauss, individually, and Fran Strauss, individually, Appellees.

No. 4D04-1029.

District Court of Appeal of Florida, Fourth District.

May 25, 2005.

Rehearing Denied July 7, 2005.

Robert J. Harkins and Mark J. Dearman of Dearman & Gerson, Plantation, for appellant.

Thomas D. Lardin of Thomas D. Lardin, P.A., Delray Beach, for appellees.

GROSS, J.

In this case, a close corporation sued a former business associate and prevailed after a non-jury trial. The issue we address is whether the corporation, its sole shareholder, and her husband may assert res judicata or collateral estoppel to defeat a lawsuit filed against them by the business associate who lost at the trial. We hold that res judicata bars the claim against the corporation, collateral estoppel precludes the claims against the shareholder and her husband, and affirm.

Fran and Elmer Strauss, wife and husband, were involved with a corporation called Marketing 10, Inc.; Fran was the sole shareholder and Elmer was a creditor. As president of the corporation, Fran entered into a stock option agreement with Dieter Zikofsky.

A dispute arose concerning the stock option agreement. The dispute was resolved by a 1997 agreement that included a covenant by Zikofsky not to compete and a $50,000 payment to Zikofsky.

Marketing 10 later sued Zikofsky for breach of the 1997 agreement. A successor corporation, Robby Vapor Systems, Inc., was substituted for Marketing 10 as the plaintiff during the litigation. The corporation sought to enforce the 1997 agreement, including the covenant not to compete; alternatively, the corporation sued to recover its $50,000 payment, contending that Zikofsky had fraudulently induced it to enter into the 1997 agreement.

Among his affirmative defenses, Zikofsky asserted that Marketing 10 had fraudulently induced him to enter into the 1997 agreement. The trial judge denied Zikofsky's motion to file a counterclaim against the corporation and third party complaint against the Strausses.¹ A pretrial stipulation identified one triable issue as "[w]hether Zikofsky's execution of the [1997 agreement] was procured by fraud."

The case was tried non-jury. In a final judgment dated November 13, 2001, the trial court did not grant the corporation's request for injunctive relief. However, without elaboration, the court awarded the corporation $50,000, plus pre-judgment interest as a final judgment against Zikofsky. The corporation thus prevailed on its claim that Zikofsky had fraudulently induced it to enter into the 1997 agreement.

Before the final judgment was rendered in the first suit, on October 2, 2001, Zikofsky filed a separate lawsuit against Robby Vapor Systems and each of the Strausses, individually. All counts of the second suit turned on the claim that the Strausses, who were both involved in the operation of the business, had fraudulently induced Zikofsky to enter into the 1997 agreement.

After the entry of final judgment in the first case, Robby Vapor Systems and the Strausses moved for summary judgment in the second lawsuit on the grounds of either collateral estoppel or res judicata. Without elaboration, the trial court granted the motion and entered a summary final judgment.

The doctrine of res judicata bars Zikofsky's second lawsuit against Robby Vapor Systems.

To successfully invoke a res judicata defense, a party must satisfy two prerequisites. See Ludovici v. McKiness, 545 So.2d 335, 337 (Fla. 3d DCA 1989)

. First, a judgment on the merits must have been rendered in a former suit. See, e.g., Tyson v. Viacom, Inc., 890 So.2d 1205, 1209 (Fla. 4th DCA 2005) (en banc). Second, four identities must exist between the former suit and the suit in which res judicata is to be applied: "`(1) identity in the thing sued for; (2) identity of the cause of action; (3) identity of the persons and parties to the actions; and (4) identity of the quality or capacity of the persons for or against whom the claim is made.'" Id. (citations omitted). The policy "underlying res judicata is that if a matter has already been decided, the petitioner has already had his or her day in court, and for purposes of judicial economy, that matter generally will not be reexamined again in any court (except, of course, for appeals by right)." Topps v. State, 865 So.2d 1253, 1255 (Fla.2004) (emphasis in original).

To decide whether there is an identity of cause of action between two lawsuits, a court looks not only at the causes of action actually raised in the first suit, but also at "`every other matter which the parties might have litigated and had determined, within the issues as [framed] by the pleadings or as incident to or essentially connected with the subject matter' of the first litigation." Tyson, 890 So.2d at 1214 (Gross, J., concurring specially) (quoting Hay v. Salisbury, 92 Fla. 446, 109 So. 617, 621 (1926)). This narrow transactional test extends to "essentially connected" claims that a defendant in a former action failed to raise as a defense. See Fla. Real Estate Comm'n v. Harris, 134 So.2d 785, 788 n. 7 (Fla.1961)

("`A judgment or decree unreversed is conclusive upon parties and estops them from setting up in a new suit brought to annul or set it aside, any matter of defense of which the parties could have availed themselves in the original proceeding, the evidence of the facts constituting the defense having been known to the parties in due time.'") (citation omitted).

In Equitable Life Assurance Society of United States v. McKeithen, 130 Fla. 568, 178 So. 127, 128-29 (1938), the supreme court applied the narrow transactional test to hold that res judicata barred an insurance company from contending that an insurance policy had been procured by fraud, when the company had failed to raise the fraud claim in an earlier lawsuit for breach of the same insurance contract.

Equitable Life involved two lawsuits. In the first action, an insured prevailed on his claim for disability benefits under an insurance contract. The insurance company raised only one defense, that the insured did not have a permanent physical disability. In a second lawsuit, the insured sought disability benefits under the same contract for payments that came due after the time period at issue in the first lawsuit. In the second lawsuit, the insurance company raised the defense that the policy had been procured by fraud. The trial court found that res judicata barred the insurance company from raising the fraud defense in the second lawsuit. The insurance company appealed.

The supreme court framed the issue:

Can a defendant, when sued on a contract, file a single defense which recognizes the validity of the contract, and when, after judgment is entered against the defendant in that action, in a second action on the same contract, plead that the contract is invalid on account of fraud in its procurement, when the facts constituting the alleged fraud were known to the defendant before the day of the trial in the first action?

Id. at 128. The court answered its question in the negative, holding that the insurance company was barred from raising the fraudulent procurement defense in the second lawsuit, writing that

where a suit is upon the s[am]e contract, and the validity of the contract has been decided, by necessary implication, in the former suit, and the rights of the parties have been established under the contract in that case, neither party can attack the validity of such contract in a subsequent suit thereon between the same parties.

Id. at 130. Thus, in a suit on a contract, the failure of a defendant to raise a fraudulent inducement defense will bar the defendant from later raising the defense in a second action on the same contract or from making fraudulent inducement "the basis of a subsequent suit by the defendant" against the plaintiff. Id. at 130 (citation omitted).

Equitable Life controls the result in this case as to Robby Vapor Systems. The first lawsuit involved a suit on a contract; Robby Vapor Systems was a party. Zikofsky raised a fraudulent inducement defense. Even if he had not, the holding in Equitable Life required him to raise the defense in the first lawsuit as a challenge to the validity of the 1997 agreement. The trial court entered a final judgment against Zikofsky. To decide for Robby Vapor Systems, the trial court necessarily rejected Zikofsky's fraud-based defense. As in Equitable Life, "the validity of the contract [was] decided" by the judgment in the first case. Id. Applying res judicata, that judgment bars Zikofsky from using fraudulent inducement as a defense or as a basis for a cause of action against Robby Vapor Systems in a later lawsuit.² Even though he filed the second lawsuit while the first one was still pending, Zikofsky cannot avoid the effect of res judicata. The fraud claim against Robby Vapor Systems was a compulsory counterclaim that could be brought as an independent suit while the first suit was still pending; however, once the first suit was terminated by the entry of a final judgment, the second suit was "barred under the doctrine of res judicata." Chassan Prof'l Wallcovering v. Victor Frankel, Inc., 608 So.2d 91, 93 (Fla. 4th DCA 1992); Cheezem Dev. Corp. v. Maddox Roof Serv., Inc., 362 So.2d 99 (Fla. 2d DCA 1978).

While res judicata applies to bar Zikofsky's claims against Robby Vapor Systems, the doctrine is inapplicable to the causes of action he brought against the Strausses, because they were not parties to the first lawsuit, so the "identity of the parties" prerequisite was not satisfied.

Although the Strausses' absence as parties in the first lawsuit precludes them from raising the res judicata defense, they still satisfy the requirements of collateral estoppel in the second case.

"The doctrine of collateral estoppel (or issue preclusion), also referred to as estoppel by...