Raley v. Haider

• Court: Supreme Court of Virginia
• Decided: September 12, 2013
• Docket: 122069
• Status: Published

Opinion

PRESENT: All the Justices

THOMAS RALEY OPINION BY v. Record No. 122069 JUSTICE S. BERNARD GOODWYN September 12, 2013 NAIMEER HAIDER, ET AL.

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY Jan L. Brodie, Judge

In this appeal, we consider whether the circuit court

erred in sustaining the defendants’ demurrer and dismissing

plaintiff’s entire case based on res judicata.

Background

In 2008 and 2009, Thomas J. Raley, M.D. (Raley) was

employed by Minimally Invasive Spine Institute, PLLC (MISI), a

medical practice owned and managed by Naimeer Haider, M.D.

(Haider). Raley claimed MISI had failed to pay him all the

money he earned and filed suit (the original case) in the

Circuit Court of Fairfax County in 2010. After amendment of

the complaint, Raley alleged, in pertinent part, breach of

contract (Count I) and breach of implied contract (Count III)

against MISI. In Count II, Raley sued MISI as well as Haider,

individually, alleging that Haider wrongfully distributed money

from MISI to himself, depleting MISI of funds in violation of

Code § 13.1-1035, which governs distributions made by Virginia

limited liability companies. MISI and Haider filed a demurrer to Count II, arguing that

Code § 13.1-1035 only allowed the LLC itself or a member of the

LLC to bring an action pursuant to that statute. The circuit

court agreed that Raley, who was not a member of MISI, could

not bring a cause of action pursuant to Code § 13.1-1035, and

sustained the demurrer. It dismissed Raley’s Count II claim

against MISI and Haider with prejudice. The case proceeded

against MISI on the other counts, and Raley was awarded a

judgment for $395,428.70 plus interest against MISI.

Raley has been unable to collect the judgment he was

awarded against MISI and filed a garnishment proceeding on

March 22, 2012, in the Circuit Court of Fairfax County, naming

Haider as the garnishee, in essence, asserting the rights of

MISI for Haider’s alleged violation of Code § 13.1-1035.

Additionally, on May 24, 2012, Raley filed a complaint in the

Circuit Court of Fairfax County against Haider, Minimally

Invasive Pain Institute, PLLC (MIPI) and Wise, LLC (Wise). In

Count I of the complaint, Raley sought, as MISI’s judgment

creditor, to enforce MISI’s rights against Haider regarding

money Haider wrongfully transferred to himself from MISI. In

Counts II through VIII, Raley alleged that Haider ordered

improper transfers from MISI to MIPI and Wise, as well as to

himself, essentially “looting” MISI and preventing the payment

of Raley’s judgment. Because both claims essentially sought to

2 assert rights of MISI for violation of Code § 13.1-1305, the

parties agreed to a consolidation of the garnishment action

with Count I of the complaint (the garnishment and complaint

are collectively referred to as “the consolidated action”).

Haider, MIPI and Wise filed a demurrer, plea in bar and

motion for a bill of particulars. The circuit court sustained

the defendants’ demurrer as to all counts, ruling that based

upon the circuit court’s dismissal with prejudice of Count II

of the original case brought by Raley against MISI and Haider,

res judicata barred all subsequent claims regarding funds Raley

alleged to have been improperly transferred by Haider out of

MISI.

This Court granted an appeal on the following assignments

of error:

1. The circuit court erred in granting the demurrer of all defendants to all counts of the Complaint, and to the Garnishment Summons that had been consolidated into Count I of the Complaint, on grounds of res judicata.

2. The circuit court erred in granting the demurrer of all defendants to plaintiff’s garnishment action (which had been consolidated into Count I of the Complaint) on grounds of res judicata.

3. The circuit court erred in granting the demurrer of defendant Haider to the new causes of action set forth in Counts II through VIII, inclusive, of the Complaint.

4. The circuit court erred in granting the demurrer of defendants Minimally Invasive Pain Institute, PLLC and Wise, LLC to the new causes of

3 action set forth in Counts II through VIII, inclusive, of the Complaint.

Analysis

Raley argues that his consolidated action was not barred

by res judicata because the circuit court’s dismissal of Count

II in the original case was based on Raley’s lack of standing

to sue, a jurisdictional determination, and did not reach the

merits of Haider’s and MISI’s liability. Thus, Raley contends

that the dismissal with prejudice of Count II of the original

case was not decided on the merits, and therefore cannot be the

basis for an assertion of res judicata. Haider, MISI and Wise

respond that Raley waived this argument pursuant to Rule 5:25

because he never articulated it to the circuit court.

We agree with Haider. A review of the record indicates

that Raley did not articulate to the circuit court the argument

that the dismissal with prejudice of Count II of the original

case was not a final judgment on the merits for res judicata

purposes. Because Raley raises this argument for the first

time on appeal, we will not consider it. Rule 5:25. Thus, the

dismissal with prejudice of Count II in the original case will

be considered as a final judgment on the merits. See Trustees

v. Taylor & Parrish, Inc., 249 Va. 144, 154, 452 S.E.2d 847,

852 (1995) (Where a party “did not object or assign error to

[the circuit court’s] ruling, it . . . become[s] the law of the

4 case.”) (citation omitted). Consequently, the circuit court

properly considered the res judicata effect of the dismissal

with prejudice in the original case. Rule 1:6(a); see Virginia

Concrete Co. v. Board of Supervisors, 197 Va. 821, 825, 91

S.E.2d 415, 418 (1956) (“[A]s a general proposition[,] a

judgment of dismissal which expressly provides that it is ‘with

prejudice’ operates as res judicata and is as conclusive of the

rights of the parties as if the suit had been prosecuted to a

final disposition adverse to the plaintiff.”) (citations

omitted). Accord Shutler v. Augusta Health Care for Women,

P.L.C., 272 Va. 87, 92-93, 630 S.E.2d 313, 315 (2006); Reed v.

Liverman, 250 Va. 97, 100, 458 S.E.2d 446, 447 (1995).

Alternatively, Raley claims that, in Count I and the

garnishment proceeding, he asserts a claim belonging to MISI

against Haider and such a claim would not be barred by res

judicata because there is no identity of parties. He also

asserts that res judicata would not bar any claims against MIPI

and Wise in that neither entity was involved in the previous

litigation.

In the Commonwealth, Rule 1:6 governs the doctrine of res

judicata.

A party whose claim for relief arising from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing

5 party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence, whether or not the legal theory or rights asserted in the second or subsequent action were raised in the prior lawsuit . . . .

Rule 1:6(a). Furthermore, “[t]he law of privity as heretofore

articulated in case law in the Commonwealth of Virginia is

unaffected by this Rule and remains intact. For purposes of

this Rule, party or parties shall include all named parties and

those in privity.” Rule 1:6(d).

One of the fundamental prerequisites to the application of the doctrine of res judicata is that there must be an identity of parties between the present suit and the prior litigation asserted as a bar. A party to the present suit, to be barred by the doctrine, must have been a party to the prior litigation, or represented by another so identified in interest with him that he represents the same legal right.

Leeman v. Troutman Builds, Inc., 260 Va. 202, 206, 530 S.E.2d

909, 911 (2000) (citation omitted).

A garnishment action “effectively is a proceeding by the

judgment debtor in the name of the judgment creditor against

the garnishee. The judgment creditor stands on no higher

ground than the judgment debtor and can have no right greater

than the judgment debtor possesses.” Hartzell Fan, Inc. v.

Waco, Inc., 256 Va. 294, 299, 505 S.E.2d 196, 200 (1998)

(citations omitted). The garnishment filed by Raley, and Count

I of the complaint with which it was consolidated, is

effectively a proceeding by MISI (the judgment debtor) in the

6 name of the judgment creditor (Raley) against Haider (the

garnishee).

In the garnishment action and Count I of the consolidated

action, Raley steps into the shoes of MISI. In effect, MISI is

suing Haider. See id. In the original case, Raley was suing

Haider. Thus, the same parties are not in opposition in the

original case and the consolidated action, and the defense of

res judicata is not a bar to the garnishment and Count I claims

against Haider. See Gunter v. Martin, 281 Va. 642, 646, 708

S.E.2d 875, 877 (2011) (“[T]he failure to establish any one

element is fatal to the plea of res judicata.”) (citations

omitted).

Portions of Counts II through VIII in the consolidated

action also allege claims by Raley against Haider, specifically

that Haider unlawfully conveyed MISI’s assets to himself and

others. The “same opposing party or parties” are involved in

Count II of the original case and Counts II through VIII of the

consolidated action, to the extent these counts pertain to

Haider. See Rule 1:6(a).

In Count II of the original case, which was dismissed with

prejudice, Raley alleged that “Haider made distributions to

himself, [thereby] depleting MISI of funds.” The current

Counts II through VIII that pertain to Haider arise from the

same “conduct, transaction, or occurrence.” Rule 1:6(a). Res

7 judicata requires that the two actions involve the same

definable factual transaction. See Martin-Bangura v.

Commonwealth Dep’t of Mental Health, 640 F.Supp.2d 729, 739

(E.D. Va. 2009) (applying Virginia law and stating: “The

conduct, occurrence, or transaction complained of in the state

grievance was plaintiff’s receipt of a . . . written notice and

his subsequent termination from NVTC. Likewise, the very same

transaction, his termination from NVTC, underlies plaintiff’s

federal Title VII claim at issue here. As Rule 1:6 makes

clear, plaintiff is precluded here from asserting any claims he

had concerning his termination from NVTC.”).

Thus, as concerns the actions by Raley against Haider

individually, the same opposing parties involved in the

original case are involved in Counts II through VIII of the

consolidated action, and the claims arise from the same

conduct, transaction, or occurrence. See Rule 1:6(a). It is

the law of the case that Count II in the original case was

adjudicated on the merits by a final judgment. Therefore, the

prerequisites to the application of the doctrine of res

judicata are satisfied, and res judicata bars the relitigation

of Counts II through VIII in the consolidated action against

Haider individually. The circuit court did not err in finding

that the claims against Haider in Counts II through VIII were

barred by res judicata.

8 Wise and MIPI were not parties in the original case. Res

judicata, therefore, may only apply as a bar to the claims

against them if Wise and MIPI were in privity with Haider or

MISI in the original case.

“The touchstone of privity for purposes of res judicata is

that a party’s interest is so identical with another that

representation by one party is representation of the other’s

legal right.” State Water Control Bd. v. Smithfield Foods,

Inc., 261 Va. 209, 214, 542 S.E.2d 766, 769 (2001) (citations

omitted). “It is merely a word used to say that the

relationship between the one who is a party on the record and

another is close enough to include that other within the res

judicata. Thus, privity centers on the closeness of the

relationship in question.” Weinberger v. Tucker, 510 F.3d 486,

492-93 (4th Cir. 2007) (stating that under Fourth Circuit and

Virginia decisions, the test for privity is the same) (citation

omitted). As such, “[t]here is no single fixed definition of

privity for purposes of res judicata. Whether privity exists

is determined on a case by case examination of the relationship

and interests of the parties.” Smithfield Foods, 261 Va. at

214, 542 S.E.2d at 769; see also Columbia Gas Transmission, LLC

v. David N. Martin Revocable Trust, 833 F.Supp.2d 552, 558

(E.D. Va. 2011) (“Virginia courts typically find privity when

the parties share a contractual relationship, owe some kind of

9 legal duty to each other, or have another legal relationship

such as co-ownership.”).

Although Haider is associated with them, Wise and MIPI are

separate legal entities from Haider, which indicates that their

interests may not be the same. See Code § 13.1-1000 et seq.;

Gowin v. Granite Depot, LLC, 272 Va. 246, 254, 634 S.E.2d 714,

719 (2006) (“A limited liability company is an entity that,

like a corporation, shields its members from personal liability

based on actions of the entity.”); Cheatle v. Rudd’s Swimming

Pool Supply Co., 234 Va. 207, 212, 360 S.E.2d 828, 831 (1987)

(“The proposition is elementary that a corporation is a legal

entity entirely separate and distinct from the shareholders or

members who compose it. This immunity of stockholders is a

basic provision of statutory and common law and supports a

vital economic policy underlying the whole corporate concept.”)

(citation omitted).

In the present case, MIPI and Wise do not share an

identity of interest with Haider or MISI. In the first suit,

Haider was accused of wrongfully distributing MISI’s assets to

himself. Wise and MIPI have no contractual duty or legal

interest in this accusation. They only have an interest in the

assets of MISI that they are alleged to possess. Moreover,

neither MISI nor Haider represented Wise’s and MIPI’s interests

in the first suit. Whether the circuit court found in MISI’s

10 or Haider’s or Raley’s favor, the result was of no consequence

to Wise and MIPI because no effect of the judgment would reach

them; none of their rights or concerns were adjudicated.

Because MISI and Haider did not represent MIPI’s and

Wise’s interests in the first suit, MIPI and Wise were not in

privity with MISI or Haider. See Smithfield Foods, 261 Va. at

216, 542 S.E.2d at 770. Without MIPI and Wise being privies of

MISI and Haider or an opposing party of Raley in the first

suit, the same opposing parties requirement of Rule 1:6(a) is

not met. Res judicata does not bar Raley’s claims against Wise

and MIPI. See Gunter, 281 Va. at 646, 708 S.E.2d at 877.

Conclusion

The circuit court erred in holding that res judicata bars

Raley’s claims against MIPI and Wise and Raley’s Count I and

garnishment claims against Haider. The circuit court, however,

did not err in holding that res judicata bars the claims

brought against Haider in Counts II through VIII of the May 24,

2012 complaint.

Accordingly, for the reasons stated above, we will affirm

the judgment of the circuit court in part, reverse in part, and

remand this case for further proceedings consistent with this

opinion.

Affirmed in part, reversed in part, and remanded.