Shin v. Portals Confederation Corp.

728 A.2d 615, 1999 D.C. App. LEXIS 94, 1999 WL 247248

• Court: District of Columbia Court of Appeals
• Decided: April 22, 1999
• Docket: 96-CV-618
• Status: Published

Opinions

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 cáse, we affirm.

I

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 drycleaning business.¹ 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 renta-ble 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),² 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.³ 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 contract⁴ 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 áppeal.

II

Whether the trial court correctly applied res judicata principles to the facts of this ease 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, 24 L.Ed. 195 (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.⁵ 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.⁶ 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.⁷

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 ... attacked] 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.

Ill

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.

IV

Because the trial court correctly applied the doctrine of res judicata to the facts of this case, its order of dismissal is

Affirmed.

1 . The named appellees, two corporations, are the general partners in the two limited partnerships which own and manage the building.

2 .Super. Ct. L & T Rule 5(b) provides in pertinent part:

Counterclaims. In actions in this Branch for recovery of possession of property in which the basis of recovery is nonpayment of rent ... 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.

3 . One of the principal tenants was a large government agency, which had leased space but had not yet moved any of its personnel into the building.

4 . Although Mr. Shin states in his brief that he sued only for fraudulent misrepresentation, the fifth count of his complaint alleged that the landlords had agreed in the lease "to construct certain build-outs” so that he could install a dry cleaning clothes conveyor, and that they had "breached the contract” by failing to do so.

5 . L & T Rule 5(b) provides that a defendant in a possessory action may "assert an equitable defense of recoupment or set-off_” Both re-coupment and set-off defenses are really nothing more than requests that the court reduce any award to the plaintiff by any sums owed to the defendant as a result of the tenancy. See Pernell v. Southall Realty, 294 A.2d 490, 496 (D.C.1972) (characterizing back rent paid as recoupment and money spent repairing the premises as set-off), rev’d. on other grounds, 416 U.S. 363, 94 S.Ct. 1723, 40 L.Ed.2d 198 (1974).

6 .Shin contended in the landlord-tenant proceeding that the language of the lease excused his non-payment of rent. He could also just as well have argued, but did not, that the lease itself was unenforceable because appellees had engaged in fraudulent misrepresentation and had breached the contract, as he now belatedly alleges.

7 . Winchester Management Corp. v. Staten, 361 A.2d 187 (D.C.1976), is inapposite here because the tenant-defendants in that case raised an equitable defense of rent set-offs based on alleged housing code violations, rather than a general denial of liability. See id. at 189-190 (affirming the set-offs based on lack of hot water but reversing the trial court’s finding that an intermittent failure of air conditioning equipment violated the housing code). Our limitation on equitable defenses in Winchester would not have precluded Shin from asserting his present claims as a legal defense in the landlord-tenant proceeding. Moreover, in Winchester the only issue was the landlord's right to possession; no judgment for unpaid rent was sought or entered.