Summary
holding that issue preclusion "cannot be asserted as a bar by a person who was a stranger to the prior litigation"
Summary of this case from Hately v. WattsOpinion
46864 Record No. 900739
April 19, 1991
Present: All the Justices
Since collateral estoppel cannot be asserted in a circuit court case as a bar to claims against a person who was not a party to federal litigation involving the same corporation and other individuals, the partial summary judgment of the circuit court should not have been granted, and the case is remanded for further proceedings.
Practice and Procedure — Jurisdiction — Collateral Estoppel — Affirmance — Res Judicata
An individual filed a complaint in the United States District Court against a corporation of which his brother was the majority stockholder. He alleged that he was entitled to receive ownership of a large amount of stock in the corporation. The corporation filed an answer and a counterclaim alleging that the individual had conspired with others to commit certain torts against the corporation, had breached fiduciary duties and contracts, and had misappropriated corporate assets. The federal court severed the counterclaim and the individual and the corporation proceeded to litigate the individual's claims. The corporation attempted to dismiss the federal suit on the basis that another person, who was an indispensable party was not joined in the suit. That person, a sister of the feuding brothers, signed a pleading in which she agreed to be bound by a ruling of the court to the same extent that her brother, who was a party, would be. The federal litigation between the brothers was settled, with a judgment entered against the corporation and another in favor of the corporation on the counterclaim. The court permitted the corporation to withdraw, with prejudice, certain claims. The court's final order was appealed to, and dismissed by, the Court of Appeals for the Fourth Circuit. The corporation filed a motion for judgment against the sister and the corporation president's former wife in a Virginia circuit court while the federal proceeding was pending, alleging that the two and the other brother were co-conspirators and had breached contracts and fiduciary duties with the corporation. The trial court granted the sister's motion for partial summary judgment on the basis of collateral estoppel.
1. Collateral estoppel is the preclusive effect impacting in a subsequent action based upon a collateral and different cause of action. In the subsequent action, the parties to the first action and their privies are precluded from litigating any issue of fact actually litigated and essential to a valid and final personal judgment.
2. Collateral estoppel cannot be asserted as a bar by a person who was a stranger to the prior litigation. A litigant is generally prevented from invoking the preclusive force of a judgment unless he would have been bound had the prior litigation of the issue reached the opposite result.
3. Collateral estoppel is only applicable to issues which were actually litigated in the former proceeding. The requirement that an issue must have been the subject of actual rather than potential litigation is one of the features which distinguishes collateral estoppel from res judicata.
4. Here collateral estoppel cannot be asserted as a bar to the claims of the corporation against the president's sister because she was not a party to the federal litigation. Even though she signed an "affirmance" in that litigation, she only agreed to be bound by an adverse determination that one brother had no stock in the corporation and she did not agree to be bound by any adverse ruling against that brother relating to the counterclaim that had been filed against him in the federal litigation.
5. The issue of whether the two women conspired to commit certain acts against the corporation was not ever actually litigated, and, therefore, the federal judgment has no preclusive effect in the state proceeding. The trial court should have denied the sister's motion for partial summary judgment.
Appeal from a judgment of the Circuit Court of Arlington County. Hon. Benjamin N. Kendrick, judge presiding.
Reversed and remanded.
Raymond D. Battocchi for appellant.
Victor M. Glasberg for appellee.
The sole issue in this appeal is whether the trial court correctly applied the doctrine of collateral estoppel in this litigation, which involves bitter business and personal disputes among family members.
Kelvin Dual filed a complaint in the United States District Court for the Eastern District of Virginia against Dual Associates, Inc. in 1988. Kelvin alleged that he was entitled to ownership of 20% of the stock in Dual Associates, a Maryland corporation licensed to do business in Virginia. Dual Associates filed an answer and counterclaim, and alleged in its counterclaim that Kelvin Dual, Evelyn Dual, and Jo-Ann Wells were "co-conspirators" who committed certain torts against the corporation, breached "fiduciary duties and duties of loyalty" to the corporation, misappropriated corporate assets, and breached contracts that they had made with the corporation.
Fred Dual, Jr., founder, president and majority shareholder of Dual Associates, Inc., is the brother of Jo-Ann Wells and Kelvin Dual. At the time of the federal proceeding, J. Fred Dual was the husband of Evelyn Dual.
The federal court severed the counterclaim, and Kelvin and Dual Associates proceeded to litigate Kelvin's claims. Dual Associates filed a motion to dismiss the federal suit because Jo-Ann was an indispensable party. In response, Kelvin filed a pleading captioned "Affirmance of Jo-Ann Wells" which was signed by Jo-Ann, in which she stated:
I hereby knowingly and voluntarily state, as a judicial declaration binding upon me for all purposes and in all forms, that I shall be bound by a ruling of this court that Kelvin has not made out a prima facie claim for stock; provided only that if such ruling is successfully appealed by Kelvin I wIll not be bound by it any more than he is. I understand that if the court rules that Kelvin has not made out a prima facie claim for stock, I shall be forever barred from asserting any claim for stock myself (barring a successful appeal by Kelvin, as noted).
The federal court, sitting without a jury, heard evidence relating to Kelvin's claim of stock ownership. One of the affirmative defenses which Dual Associates asserted in an effort to defeat Kelvin's claim for stock ownership was that Kelvin had "unclean hands" because of conduct which was described in the counterclaim. The federal court made a factual finding that there was not "any compelling evidence of unclean hands."
Ultimately, the federal court litigation between Kelvin and Dual Associates was settled. A judgment of $10,823 was entered against the corporation on Kelvin's claim. A judgment of $17,500 was entered in favor of the corporation on its counterclaim against Kelvin. The court permitted the corporation to withdraw, with prejudice, certain claims provided it paid Kelvin $16,207 in legal fees and $2,150 in costs. The court's amended final order was appealed to, and dismissed by, the United States Court of Appeals for the Fourth Circuit.
Dual Associates filed an amended motion for judgment against Jo-Ann and Evelyn in the Circuit Court of Arlington County while the federal proceeding was pending. Dual Associates alleged that Jo-Ann, Evelyn, and Kelvin were "co-conspirators" and had breached "fiduciary and loyalty duties" owed to the corporation and breached contracts with the corporation. Jo-Ann filed an "answer to amended motion for judgment." Jo-ann filed a "plea in bar or, in the alternative, motion for partial summary judgment on the basis of former adjudication." The trial court reviewed the record, considered memoranda of law and argument of counsel, and granted Jo-Ann's motion on the basis of collateral estoppel. Dual Associates took a voluntary non-suit of all claims which were not dismissed.
Dual Associates subsequently settled its claims against Evelyn.
Virginia procedure does not recognize an "answer" to a motion for judgment. Rather, the proper pleading is a "grounds of defense."
The trial court dismissed Count I of the amended motion for judgment which alleged a conspiracy. Counts II-IV of the amended motion for judgment, which allege intentional torts, were dismissed as to all claims alleged to have arisen through November 17, 1986, and as to all claims stated against persons other than Jo-Ann. The court dismissed Count V of the amended motion which alleged breaches of implied or express promises to repay money owed to the corporation.
Dual Associates contends that the trial court erred when it granted Jo-Ann's motion for partial summary judgment because collateral estoppel does not apply. We agree. We have said that:
Collateral estoppel is the preclusive effect impacting in a subsequent action based upon a collateral and different cause of action. In the subsequent action, the parties to the first action and their privies are precluded from litigating any issue of fact actually litigated and essential to a valid and final personal judgment in the first action.
Bates v. Devers, 214 Va. 667, 671, 202 S.E.2d 917, 921 (1974) (emphasis in original; footnotes omitted).
Collateral estoppel cannot be asserted as a bar by a person who was a stranger to the prior litigation. Dotson v. Harman, 232 Va. 402, 405, 350 S.E.2d 642, 644 (1986). "[A]ccording to the principle of mutuality, to which there are exceptions, a litigant is generally prevented from invoking the preclusive force of a judgment unless he would have been bound had the prior litigation of the issue reached the opposite result." Norfolk Western Railway Co. v. Bailey Lumber Company, 221 Va. 638, 640, 272 S.E.2d 217, 218 (1980). Additionally, collateral estoppel is only applicable to issues which were actually litigated in the former proceeding.
[W]hen different causes of action are involved, the parties to the first action and their privies are barred from relitigating any issue of fact actually litigated and essential to a valid, final, personal judgment in the first action . . . . The requirement that an issue must have been the subject of actual rather than potential litigation is one of the features distinguishing collateral estoppel from res judicata. Snead v. Bendigo, 240 Va. 399, 401, 397 S.E.2d 849, 850 (1990) (emphasis in original).
[4-5] Collateral estoppel cannot be asserted as a bar to Dual Associates' claims against Jo-Ann because she was not a party to the federal litigation. She would not have been bound by a judgment entered in that lawsuit. Even though Jo-Ann signed an "Affirmance" in the federal litigation, she only agreed to be bound by an adverse determination that Kelvin did not own stock in the corporation. She did not, however, agree to be bound by any adverse ruling against Kelvin relating to the counterclaim that had been filed against him in the federal litigation. Additionally, even though the federal court found that Kelvin did not have "unclean hands" and therefore did not conspire with Jo-Ann and Evelyn, the issue of whether Jo-Ann and Evelyn conspired to commit certain acts against the corporation was not actually litigated. Therefore, the federal judgment has no preclusive effect in the state proceeding, and the trial court should have denied Jo-Ann's motion for partial summary judgment. Accordingly, we will reverse the judgment of the trial court and remand the case for further proceedings.
Reversed and remanded.