April 22, 1999
HENRY B.Y. SHIN, APPELLANT
PORTALS CONFEDERATION CORPORATION, ET AL., APPELLEES
Before Terry, Steadman, and Ruiz, Associate Judges.
The opinion of the court was delivered by: Associate Judge Terry
Notice: This opinion is subject to formal revision before publication in the Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the Court of any formal errors so that corrections may be made before the bound volumes go to press.
Appeal from the Superior Court of the District of Columbia Hon. Ellen S. Huvelle, Trial Judge
Submitted September 25, 199
Dissenting opinion by Associate Judge Ruiz at p. ----.
Terry, Associate Judge: The trial court dismissed appellant's action for fraudulent misrepresentation and breach of contract on the ground of res judicata. On appeal he contends that the court erred in granting appellees' motion to dismiss because res judicata does not apply to claims that were previously dismissed without prejudice. Given the particular and somewhat unusual facts of this case, we affirm.
This case arises from a retail lease agreement dated July 16, 1992, between appellant, Henry Shin, and appellees, Portals Confederation Corporation and Republic Properties Corporation (collectively "the landlords"). Appellant agreed to lease 580 square feet of retail space in a large office building at 1250 Maryland Avenue, S.W., in which he intended to operate a dry-cleaning business. *fn1 The lease provided that it would become effective on "the first date on which at least twenty percent of the rentable area of the Office Space is leased and occupied by tenants" and that the landlords would partially abate the rent until "at least fifty percent of the rentable area of the Office Space is leased and occupied by tenants." On June 7, 1993, the landlords notified Mr. Shin that twenty percent of the building had been leased, and he began to pay the reduced rent. In February 1994 the landlords advised him that they had leased more than fifty percent of the office space, which meant that he was then obliged to pay the full rent, beginning in March 1994. Mr. Shin, however, failed to pay the full rent, continuing instead to pay only the reduced rent, and in January and February 1995 he did not pay any rent at all.
On November 30, 1994, Republic Properties Corporation, the general partner in the partnership which managed the building, filed a complaint against Mr. Shin in the Landlord and Tenant Branch of the Superior Court, seeking payment of the partially unpaid rent and possession of the leased premises. Shin filed an answer to the complaint, along with a counterclaim alleging misrepresentation. After Republic orally moved to strike the counterclaim pursuant to Super. Ct. L&T Rule 5 (b), *fn2 appellant voluntarily withdrew it without prejudice. A bench trial was then held before Judge Henry Kennedy, in which the main issue was the meaning of the phrase "leased and occupied" in the lease agreement. Judge Kennedy found that the lease was fully integrated and that a reasonable person would interpret "leased and occupied" to refer to the time at which the tenants have a legal right to possess the property, not when the property is actually physically occupied. *fn3 Therefore, on May 24, 1995, Judge Kennedy granted a judgment of possession for Republic and entered a monetary judgment against Mr. Shin in the amount of $26,058.62, representing unpaid rent and related charges.
On December 19, 1995, almost seven months after resolution of the landlord-tenant dispute, Mr. Shin filed the instant action against the landlords, alleging fraudulent misrepresentation and breach of contract *fn4 and seeking rescission of the lease agreement and money damages. The landlords filed a motion to dismiss on the ground of res judicata, and Shin filed an opposition. The trial court, concluding that Shin's claim arose from the same "common nucleus of facts" as the landlord-tenant proceeding and that appellant could have raised his claim as a defense in that proceeding, granted the motion. Shin then noted this appeal.
Whether the trial court correctly applied res judicata principles to the facts of this case is a legal issue that we decide de novo. See Osei-Kuffnor v. Argana, 618 A.2d 712, 713 (D.C. 1993). Under the doctrine of res judicata, or claim preclusion, "a prior judgment on the merits raises an absolute bar to the relitigation of the same cause of action between the original parties or those in privity with them." Goldkind v. Snider Brothers, Inc., 467 A.2d 468, 473 (D.C. 1983) (citations omitted). The doctrine bars relitigation "not only as to every ground of recovery or defense actually presented in the action, but also as to every ground which might have been presented . . . ." Cromwell v. County of Sac, 94 U.S. 351, 353 (1877) (emphasis added); accord, e.g., Molovinsky v. Monterey Cooperative, Inc., 689 A.2d 531, 533 (D.C. 1996); Faulkner v. Government Employees Insurance Co., 618 A.2d 181, 183 (D.C. 1992); Goldkind, supra, 467 A.2d at 473 n.10.
"A defendant seeking dismissal of a complaint on res judicata grounds bears the burden of persuasion on two separate issues. First, he must demonstrate that the prior decision on which he bases his res judicata claim was a decision on the merits; second, he must establish that the earlier litigation was based on the same cause of action." Amos v. Shelton, 497 A.2d 1082, 1084 (D.C. 1985) (citations omitted).
Appellant contends that res judicata does not apply to this case because his counterclaim in the landlord-tenant action was dismissed (by him) without prejudice. It is certainly true that "[t]he crucial element of res judicata is a final judgment on the merits . . . and it is beyond dispute that a dismissal without prejudice does not determine the merits." Interdonato v. Interdonato, 521 A.2d 1124, 1131-1132 n.11 (D.C. 1987) (citations omitted). In addition, in Pipher v. Odell, 672 A.2d 1092, 1095 (D.C. 1996), we held that the plaintiffs' cause of action, which arose out of the same transaction as a cross-claim which they had brought in an earlier proceeding and which had been dismissed without prejudice, was not barred by res judicata because "a dismissal of a claim without prejudice does not bar a subsequent suit of issues arising out of the same cause of action." Id.; see also Thoubboron v. Ford Motor Co., 624 A.2d 1210, 1216 (D.C. 1993). Therefore, because it was not a final adjudication, Mr. Shin's voluntary dismissal of his earlier counterclaim does not, in itself, bar his present claim.
But our inquiry does not end there. A dismissal without prejudice does not forever protect a claim from dismissal in a later proceeding on the ground of res judicata. If there is subsequent litigation resulting in a decision on the merits, in which a party has the opportunity to litigate an issue and fails to do so, that party may not rely on an earlier dismissal without prejudice to shield his later claim from a res judicata-based dismissal. Such a result would violate the principle that a "final judgment embodies all of a party's rights arising out of the transaction involved, and a party will be foreclosed from later seeking relief on the basis of issues which might have been raised in the prior action." Stutsman v. Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc., 546 A.2d 367, 370 (D.C. 1988) (citations omitted; emphasis added).
In this case, after Mr. Shin voluntarily dismissed his counterclaim, there was a trial in Landlord and Tenant court, in which his present claims could have been litigated as part of his general denial of liability for rent. As challenges to the contract itself rather than equitable claims, they would not have been barred by L&T Rule 5 (b), supra note 2, which limits the types of equitable defenses and counterclaims that a defendant may assert in a possessory action. *fn5 Notwithstanding Rule 5 (b), a defendant always has the right to present any legal defense as part of a general denial of liability. See Barnes v. Scheve, 633 A.2d 62, 65 (D.C. 1993) ("In addition to a general denial, the defendant [in a possessory action] is limited to an equitable defense of recoupment or set-off, certain counterclaims for a money judgment, and a plea of title" (footnote omitted; emphasis added)). Even though Shin's allegations of fraudulent misrepresentation and breach of contract may not have been presentable in the form of a counterclaim because of Rule 5 (b), he still could have raised them as legal defenses to the landlord's claim for back rent. *fn6 These allegations are challenges to the lease itself and, if true, would have made the lease void and unenforceable, or at least would have markedly affected the total amount of the money judgment. *fn7
Shin contends nevertheless that res judicata does not bar his claim because it is not based on the same cause of action as the landlord-tenant proceeding. See Faulkner, supra, 618 A.2d at 183; Smith v. Jenkins, 562 A.2d 610, 613 (D.C. 1989). In determining whether two cases are based on the same cause of action, "the courts have considered the nature of the two actions and the facts sought to be proved in each one." Amos v. Shelton, supra, 497 A.2d at 1085 (citation omitted); see Smith v. Jenkins, supra, 562 A.2d at 613 (citing Restatement (Second) of Judgments § 24 (2) (1982)). We have specifically held that claims for fraudulent misrepresentation arise out of the same cause of action as an earlier proceeding based on the contract. For example, in Laufer v. Westminster Brokers, Ltd., 532 A.2d 130 (D.C. 1987), we held that a claim of fraud arose out of the same cause of action as an earlier breach of contract case in a foreign court. "[B]ecause the issue of Westminster's alleged fraud was one which might have been litigated in the original action . . . the [earlier] judgment raises an absolute bar to Laufer's counterclaims based on the same alleged fraud." Id. at 136 (citation omitted). Similarly, in Comer v. Fistere, 103 A.2d 206 (D.C. 1954), we held that a claim for fraud should have been raised as a compulsory counterclaim in an earlier breach of contract action because "[t]he claim . . . attack[ed] the same contract which was the subject matter of [the original] action." Id. at 208. See also Henderson v. Snider Brothers, Inc., 439 A.2d 481, 486 (D.C. 1981) (en banc) ("the defense of fraud is not an independent claim and cannot be considered as being separate and distinct from the underlying agreement and the obligation sued upon"). In this case, Mr. Shin's claim arose out of the same contract and surrounding negotiations as the landlord-tenant proceeding. We conclude, therefore, that it could and should have been offered as a defense in the landlord-tenant case, and hence that the present action is barred by res judicata.
Mr. Shin's other contention, that it would be inequitable to apply res judicata to his claim because the damages he now seeks (monetary damages and rescission of the contract) are greater than he could have recovered in the landlord-tenant adjudication (mitigated damages), is also unpersuasive. This court has held that such a discrepancy in the amount of available damages is not relevant to whether res judicata bars a claim. Osei-Kuffnor v. Argana, supra, 618 A.2d at 715 ("The fact that the jurisdictional amount of the D.C. Superior Court is greater than the jurisdictional amount of the [Maryland] Court does not demonstrate that the underlying facts and claims in the instant case have not already been adjudicated in the Maryland case" (citations omitted)). In any event, Shin was not precluded from recovering full damages. He could have raised fraud and breach of contract as defenses in the landlord-tenant proceeding, received the available damages, and, if the issues were decided in his favor, brought a subsequent action seeking full damages based on collateral estoppel.
Because the trial court correctly applied the doctrine of res judicata to the facts of this case, its order of dismissal is
Ruiz, Associate Judge, Dissenting
The doctrine of res judicata precludes relitigation of a claim that has or could have been litigated in a previous action. See Jonathan Woodner Co. v. Adams, 534 A.2d 292, 295 n.6 (D.C. 1987). Thus, as a rule of finality, res judicata does not apply if, because of procedural or jurisdictional limitations, the prior forum was not a proper one for the claim. See Restatement (Second) of Judgments § 26 (1)(c) (1982). *fn1 Further, as a rule intended to prevent multiple and vexatious litigation, res judicata is not available to a litigant who has agreed "in terms or in effect," id. at § 26 (1)(a), that a claim "subsists as a possible basis for a second action," id. at § 26 (1). *fn2 In this case, res judicata should not be applied for both reasons, as the landlords (defendants-appellees) now seek to preclude Mr. Shin's (plaintiff-appellant's) suit claiming that the landlords fraudulently induced him to enter into the lease and subsequently breached its terms, when at an earlier landlord-tenant proceeding for possession and back rent they properly opposed Mr. Shin's counterclaims based on the same theories of fraud and breach on the ground that Super. Ct. L&T R. 5 (b) "limited Shin's ability to assert his claims in the Landlord and Tenant Branch."
Rule 5 (b) provides:
"In actions in this Branch for recovery of possession of property in which the basis of recovery is nonpayment of rent or in which there is joined a claim for recovery of rent in arrears, the defendant may assert an equitable defense of recoupment or set-off or a counterclaim for a money judgment based on the payment of rent or on expenditures claimed as credits against rent or for equitable relief related to the premises. No other counterclaims, whether based on personal injury or otherwise, may be filed in this Branch. This exclusion shall be without prejudice to the prosecution of such claims in other Branches of the Court."
There is no doubt that Mr. Shin, who is now suing, inter alia, for damages suffered by his dry cleaning business *fn3 as a result of the landlords' fraud and breach, could not have brought these claims under the limited procedures available in the Landlord-Tenant Branch. "[T]he rules governing the Landlord and Tenant Branch narrowly and specifically limit its reach. . . . Rule 5 strictly circumscribes the defenses and counterclaims a defendant may assert in the Landlord and Tenant Branch." Barnes v. Scheve, 633 A.2d 62, 64-65 (D.C. 1993). In defending a landlord-tenant action for possession, a tenant may forestall eviction and defend against the obligation to pay back rent by making a general denial or a plea of title and may "assert an equitable defense of recoupment or set-off or a counterclaim for a money judgment based on the payment of rent or on expenditures claimed as credits against rent or for equitable relief related to the premises." Id. at 65 n.6 (quoting Super. Ct. L&T R. 5 (b)) (emphasis added). Defenses (other than a general denial) are limited to those based on the payment of or credits against rent because the only reason the landlord-tenant court is empowered to determine rent owed is "to allow the tenant to avoid eviction by paying the rent due." Winchester Management Corp. v. Staten, 361 A.2d 187, 192 n.13 (D.C. 1976); see Brown v. Young, 364 A.2d 1171, 1173 (D.C. 1976) (disallowing breach of lease as defense to suit for possession). "[T]he power to assess the amount of rent owed in a summary possessory action does not give rise to an expanded authority simultaneously to adjudicate all conflicting claims between the landlord and tenant." Winchester Management Corp., supra, 361 A.2d at 192 n.13 (citing Tutt v. Doby, 148 U.S. App. D.C. 171, 174-75, 459 F.2d 1195, 1198-99 (1972)); see Campos v. Aguila, 464 A.2d 132, 133 (D.C. 1983) (dismissing tenant's defense unrelated to obligation to pay rent); Weisman v. Middleton, 390 A.2d 996, 1001-02 (D.C. 1978) (distinguishing between claim of retaliatory eviction, which is a defense to suit for possession, and suit for malicious prosecution in bringing a suit for possession, which is an independent action.). Therefore, even if he had prevailed in his defense and avoided the back rent obligation in the amount of $26,000, Mr. Shin could not have recovered in the landlord-tenant action the allegedly greater amount of damages for his loss of business. Thus, the judgment in landlord-tenant court cannot render Mr. Shin's civil complaint res judicata. See Carr v. Rose, 701 A.2d 1065, 1072 (D.C. 1997) (citing Restatement (Second) of Judgments § 30 (2)).*fn4
The landlords do not contest that, at their instance, Mr. Shin withdrew his counterclaims "without prejudice to the prosecution of such claims in other Branches of the Court," Super. Ct. L&T R. 5 (b), nor do they argue that the landlord-tenant court considered and adjudicated Mr. Shin's claims of fraud and breach. Indeed, the record makes clear that the only issue before the landlord-tenant court was the interpretation of one phrase in the lease, "leased and occupied by tenants," which determined when the lease's rent abatement provision terminated and Mr. Shin became liable for the full rent the landlords were attempting to collect. The landlords contend, however, that Mr. Shin could have asserted the substance of his claims for fraud and breach as a defense to their suit for possession and back rent, and that, because he did not do so, he is now precluded from bringing the present complaint in the civil branch. Not so. Even if Mr. Shin arguably could have defended against the landlord-tenant action with some of the same arguments he makes in his complaint for damages for misrepresentation and breach, *fn5 that does not mean that the landlord-tenant court could have adjudicated the defense in such a manner that would have established his counterclaim. *fn6 We have noted that where a portion of a defendant's counterclaim "partially fits, but to some extent exceeds" the scope permitted by Rule 5 (b), the landlord-tenant branch does not have jurisdiction and the proper remedy is for the court to dismiss the counterclaim without prejudice or transfer the case to the civil branch. See Mathis v. Barrett, 544 A.2d 287, 288-89 (D.C. 1988). Here, the landlord-tenant court did not dismiss Mr. Shin's counterclaim without prejudice, nor did it transfer the case to the civil branch. Rather, upon the landlords' motion that the counterclaim exceeded the permissible scope under Rule 5 (b), Mr. Shin voluntarily withdrew his counterclaims for fraud and breach "without prejudice" and the landlord-tenant action proceeded solely on the issue of interpretation of the rent abatement provision. In these circumstances, such voluntary withdrawal, like the "dismissal without prejudice" that the trial court otherwise would have entered, see id., has no preclusive effect. See Pipher v. Odell, 672 A.2d 1092, 1094 (D.C. 1996) (citing Thoubboron v. Ford Motor Co., 624 A.2d 1210, 1216 (D.C. 1993) and Interdonato v. Interdonato, 521 A.2d 1124, 1131 n.11 (D.C. 1987)). *fn7
This case is governed by the particular limitations of proceedings in the landlord-tenant branch. It is also worth noting, however, that the rules of preclusion are somewhat different as applied to plaintiffs and defendants. Although language in our cases is far from clear, res judicata or claim preclusion is generally applicable to plaintiffs' claims, but not to defenses. In Stutsman v. Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc., 546 A.2d 367 (D.C. 1988), the court held that once a final judgment had been entered in the plaintiff's favor in his "survival/loss of consortium action, . . . [plaintiff's] wrongful death cause of action [based on the same factual nucleus] merged into the final judgment and his separate claim was extinguished." Id. at 370. This is because the "rule of merger" extinguishes the plaintiff's claim and replaces it with the judgment, precluding a successful plaintiff from seeking other remedies based on the extinguished claim. See Restatement (Second) of Judgments §§ 17(1), *fn8 18 *fn9 & 24. *fn10 The "rule of bar" also extinguishes the plaintiff's claim and bars a losing plaintiff from a subsequent action on the claim. See id. at §§ 17 (2), 19 *fn11 & 24. The same rule of bar applies to extinguish a defendant's unsuccessful counterclaim. See id. at § 23. *fn12 Collateral estoppel, not claim preclusion, is applicable with respect to a defendant's defenses. See id. at § 17 (3), note 8 supra. Usually, it is not the rules of res judicata that require a defendant to assert a counterclaim on pain of extinguishment; that is the function of court rules on compulsory counterclaims. See id. at § 22 (2)(a). *fn13 There is an exception, however, for even when a counterclaim is not compulsory, a defendant may lose the claim (or defense) not previously asserted if the prior judgment would be undermined by a subsequent successful action on the same claim (or defense). See Laufer v. Westminster Brokers, Ltd., 532 A.2d 130, 136 (D.C. 1987) (precluding counterclaim that could have been raised as defense to an earlier action before English courts because "[t]o allow the defenses . . . in the guise of counterclaims would impermissibly `undercut the validity of the [prior English] judgment . . . and permit him to relitigate the case de novo.'") (quoting Bank of Montreal v. Kough, 612 F.2d 467, 473 (9th Cir. 1980)); Henderson v. Snider Bros., Inc., 439 A.2d 481, 486-87 (D.C. 1981) (en banc) (precluding subsequent claim for fraud in the inducement that would invalidate prior foreclosure action, but allowing subsequent claim for misrepresentation and breach of fiduciary duty as a "separate and distinct cause of action, which was not part of the foreclosure proceeding"); Comer v. Fistere, 103 A.2d 206, 208 (D.C. 1954) (noting that a party failing to file a compulsory counterclaim is barred from filing an independent action on such claim and that res judicata barred subsequent action where its success "would necessarily depend upon" contrary determination of point already established in prior litigation); Restatement (Second) of Judgments § 22 (2)(b). *fn14
Applying these principles to the present case, first, there is no collateral estoppel here as the landlord-tenant court did not consider Mr. Shin's fraud and breach claims. Second, in this case, as we have seen, Mr. Shin's counterclaim not only was not compelled, but was prohibited by Super. Ct. L&T R. 5 (b). *fn15 Third, a judgment for Mr. Shin in the present action for damages for misrepresentation and breach of the lease would not invalidate the judgment in the landlord-tenant action, which was premised on the existence of the lease. *fn16
Beyond these doctrinal considerations, application of res judicata in this case would not advance the principles underlying the doctrine. "This is not a case in which appellant is trying to get `a second bite of the apple.'" Faulkner v. Government Employees Ins. Co., 618 A.2d 181, 184 (D.C. 1992). As already noted, the landlord-tenant court not only did not but it could not have adjudicated Mr. Shin's counterclaims for fraud and breach. The fact that Mr. Shin failed (perhaps erroneously but inadvertently) to interpose defenses to the landlord-tenant action that may have been available to him means that he lost possession of the property and had a money judgment entered against him -- the only relief that the landlord-tenant court could grant; it does not mean, however, that as a claimant, he thereby gave up tort and contract actions which that court could not address.
In the current action, the landlords are not being hounded by multiple and vexatious litigation brought by a party seeking to relitigate his claim. Mr. Shin's claims have never been litigated. The landlords now face the totally anticipated consequences of their motion before the landlord-tenant court to dismiss Mr. Shin's counterclaims.
Lastly, we generally do not countenance arguments made on appeal that are inconsistent with arguments made to the trial court. See District of Columbia v. Wical Ltd. Partnership, 630 A.2d 174, 182 (D.C. 1993). That rule is usually applied in the context of arguments made in the court of appeals that differ from arguments made before the trial court from which the appeal is taken. In this context it is equally applicable when a contrary argument has been made in a different case by a litigant arguing for claim preclusion on appeal based on such other case. It is the litigant who asserts the other case's preclusive effect that makes the litigant's actions in the other litigation claimed to be preclusive an important part of the res judicata inquiry. See Restatement (Second) of Judgments § 26 (1)(a). Moreover, that litigant has the burden of proof. See id. § 27, cmt. f. Thus, to the extent that we do not have the record of the landlord-tenant action before us so that we may evaluate whether the landlords agreed "in terms or effect" that Mr. Shin should be able to bring his counterclaims in a subsequent action, see id. at § 26 (1)(a), note 1 supra, that deficiency is to the landlords' detriment. See Cobb v. Standard Drug Co., Inc., 453 A.2d 110, 111 (D.C. 1982).
For these reasons, I respectfully Dissent and would reverse and remand the case to allow Mr. Shin to prosecute his claims for damages occasioned to his business by the landlords' misrepresentation and breach of the lease.