Raley v. Haider ( 2013 )

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.
11