Douglas v. First Security Federal Savings Bank, Inc.

CATHELL, Judge. John H. Douglas, appellant, appeals from a decision of the Circuit Court for Prince George’s County dismissing his complaint against First Security Federal Bank (bank), several ¹⁷³ bank employees, members of the law firm representing the bank, and several of the firm’s employees (hereinafter referred to collectively as “appellees”). Appellant’s complaint, alleging fraud, wrongful foreclosure, and violation of Maryland property statutes, was dismissed as barred by the doctrine of res judicata. After final judgment was entered by the circuit court, appellant filed a notice of appeal, but, before transmission of the record to this Court, appellant filed an additional affidavit with the circuit court clerk.

Appellees objected to its inclusion in the record and moved the circuit court to strike the affidavit from its record and the record on appeal. That motion was granted. Appellant filed a second appeal from the order striking his affidavit and moved to consolidate the appeals. Appellant presents seven issues, which we reformulate and consolidate as follows: A. Whether the trial court erred in striking the “Second Affidavit of John H. Douglas” from the circuit court record and the record on appeal.

B. Whether the trial court properly applied Maryland law to the res judicata issues raised. C. Whether the trial court erred in finding that appellant’s participation in a prior suit was sufficient to actuate the principles of res judicata, and that application of res judicata principles barred appellant’s suit. Appellant also asks whether the trial court properly dismissed his case “in light of [the] fact [that] Judge Ross denied Appellees’ motion to dismiss the Baker’s [sic] suit?” We shall answer this question in summary fashion after our discussion of the facts. Facts In June, 1989, Vinson and Danella Baker (the Bakers) entered into a contract to purchase, from appellant, an undeveloped lot in Fort Washington, Maryland.

The Bakers agreed to purchase the lot alone for $61,000, and appellant agreed to take back a mortgage of $15,000, contingent upon ¹⁷⁴ the Bakers obtaining other financing for the balance. The Bakers eventually secured a loan from the bank in the amount of $185,000 to finance the lot and construction of a home. Appellant agreed to increase the amount of the mortgage he would take back to approximately $22,000 and to subordinate his mortgage to the banks’ mortgage in order to help the Bakers secure the bank loan. The loan settled on November 15, 1989.

There was a dispute as to the loan’s draw schedule, and the Bakers eventually defaulted on the loan from the bank. The bank initiated foreclosure proceedings. Soon after, the Bakers filed an action against the bank in the United States District Court for the District of Columbia, alleging breach of contract and requesting a temporary restraining order to stop the foreclosure proceedings in Prince George’s County. The court allowed the Bakers to dismiss this first suit without prejudice and refile it in the Circuit Court for Prince George’s County.

They did so and requested an ex parte injunction to stay the foreclosure. The circuit court granted a temporary injunction pending a full hearing on the merits. A hearing was held on the merits and the injunction denied. Thereafter, the court declined to set the sale aside.

Approximately two months later, the Bakers filed a bankruptcy petition in the United States Bankruptcy Court for the District of Columbia. Appellant, based upon his status as a subordinate hen (second mortgagee) holder, unsuccessfully attempted to intervene in that proceeding. The Bakers thereafter filed suit against the bank, this time in the United States District Court for the Eastern District of Virginia, alleging, among other things, bank fraud and wrongful foreclosure. Appellant, apparently in an effort to enhance his subordinate position, entered into a retainer agreement with the Bakers and their attorney prior to the Virginia federal court action.

Appellant agreed, under specified circumstances, to pay the Bakers’ costs and attorney’s fees; the agreement also entitled him to receive fifty percent of any net recovery in the Bakers’ suit against the bank. Appellant attended at least one deposition in preparation for the Virginia suit, and met with witness ¹⁷⁵ es and counsel on several occasions. All counts in the Virginia suit were disposed of either by motion to dismiss or summary judgment, and the Bakers appealed to the Fourth Circuit Court of Appeals. Vinson Baker states, in an affidavit included in the record extract, that appellant chose his attorney for the bankruptcy and Virginia actions, paid his legal fees, located witnesses and directed strategy for the litigation.

Appellant and the Bakers’ former attorney each filed an affidavit denying that appellant retained the attorney for the Bakers, chose the forum for, or controlled that litigation. On November 11, 1992, appellant and the Bakers each filed separate suits against appellees in the Circuit Court for Prince George’s County, alleging fraud and wrongful foreclosure, among other things. Appellees filed motions to dismiss in both cases. The Bakers subsequently entered into a settlement agreement with appellees and dismissed their circuit court action and the appeal pending before the Fourth Circuit.

The circuit court, on March 11, 1993, dismissed appellant’s suit. Appellant filed a motion to reconsider and, after extensive briefing and oral argument, the circuit court, in a twenty-six page written opinion filed on November 8, 1993, denied his motion and dismissed his complaint as being barred by the doctrine of res judicata. Appellant filed a timely notice of appeal on November 15, 1993. On December 21, 1993, appellant filed an affidavit with the circuit court clerk; appellees objected and the court struck the affidavit from the record.

Appellant appealed that order, and today we address the propriety of both of the circuit court’s orders. Appellant argues that the “court should not have initially dismissed [appellant’s] complaint in light of [the] fact that another Prince George’s County Judge denied Appellees’ motion to dismiss the Bakers’ suit.” Appellant offers no authority for the proposition that circuit court judges are bound by the rulings of their brethren in separate cases, or as to why a ruling in a case he claims is unrelated to his should affect the court’s decisions in his case. In Washburn v. ¹⁷⁶ Hoffman, 242 Md. 519, 525 , 219 A.2d 826 (1966), the Court of Appeals said: “While we are confident Judge Turnbull’s colleagues on the Baltimore County court, or, indeed, the court of any other county, would consider his decisions very persuasive, we cannot agree that they are in any sense binding.” In fact, prior circuit court decisions are not always binding on the same case. State v. Frazier, 298 Md. 422, 449 , 470 A.2d 1269 (1984) (“As a general principle, one judge of a trial court ruling on a matter is not bound by the prior ruling in the same case by another judge of the court....”).

Appellant’s assertion that contradictory decisions in separate cases in the circuit court are “unconscionable” does not constitute a legal basis for reversing the circuit court’s dismissal of his complaint. A. We shall first address whether the trial court erred in striking appellant’s “second affidavit” from the record in this case. Appellant filed his notice of appeal with the circuit court on November 15, 1993. The “Second Affidavit of John H. Douglas” was filed with the circuit court on December 21, 1993, thirty-six days after the appeal was filed.

The record had not yet been transmitted from the circuit court to this Court. We initially note that the trial court properly ruled on appellees’ motion to bar inclusion of the “second affidavit” in the record on appeal. Maryland Rule 8-413(a) states that “[t]he lower court, by order, shall resolve any dispute whether the record accurately discloses what occurred in the lower court, and shall cause the record to conform to its decision.” Generally, however, the circuit court loses jurisdiction over all issues raised on appeal when the appeal is filed. Gilliam v. Moog Indus., Inc., 239 Md. 107, 112 , 210 A.2d 390 (1965); TJB, Inc. v. Arundel Bedding Corp., 63 Md.App. 186, 195 , 492 A.2d 365 (1985); Link v. Link, 35 Md.App. 684, 686 , 371 A.2d 1146 (1977); Rosenbloom v. Electric Motor Repair Co., 31 Md.App. 711, 715 , 358 A.2d 617 (1976).

Therefore, ¹⁷⁷ when the appeal in the instant case was noted, the circuit court lost jurisdiction to take evidence. Further, the appellate court has a purely appellate function; we have no power to consider documents not considered by the trial court in reaching its decision when we review its decision. Burke v. Burke, 204 Md. 637, 646 , 106 A.2d 59 (1954). Both parties rely on the Court of Appeals’s decision in Burke to support their arguments.

The appellant in Burke filed a “Petition to Amend Appeal,” in which he sought to renounce part of a stipulation agreed to at trial and to incorporate certain documents into the record that were not part of the record below. Id. at 645-46 , 106 A.2d, 59 . The Court of Appeals stated: The appellant by these petitions attempts, not only to repudiate a part of his stipulation, but also to introduce additional evidence in the case. We have no power to inspect documents or consider evidence which was not offered below to determine whether the findings were correct .... “...

We must deal with cases as they are brought before us by the record transmitted from the Court below, and we have no power, whilst reviewing a particular order from which an appeal has been taken, to receive evidence or to remand the record for the Court below to hear testimony on totally different questions that in no way reflect on the only issue brought to this Court for review.” Id. at 646 , 106 A.2d 59 (citations omitted) (quoting Stanley v. Safe Deposit & Trust Co., 87 Md. 450 , 40 A. 53 (1898)). Appellant contends that the latter portion of the above quote from Burke suggests that we may review evidence not submitted below if it touches on the issues on appeal, but not if it touches different questions. Appellant misinterprets the case and misreads the sentence in question. The Court of Appeals stated that we have no power to receive evidence or remand for testimony on new questions.

This phrase is disjunctive; it establishes that we lack the power to take either action. The correct interpretation of this language in Burke is that this Court cannot receive evidence not admitted ¹⁷⁸ before the trial court. It does not matter that appellant filed the affidavit with the circuit court clerk. The circuit court no longer had jurisdiction in the case.

We also reject appellant’s reliance on Hartley v. State, 238 Md. 165 , 208 A.2d 72 (1965), where, in a criminal appeal, the Court of Appeals considered the transcript of a post conviction proceeding in order to avoid a substantial injustice. The trial court’s ruling will not result in a substantial injustice in the instant civil case. The trial court requested memoranda from the parties on appellant’s motion for reconsideration. The memoranda were due on August 6, 1993, and appellant submitted his on August 4, 1993.

Appellant states that he was unable to rebut statements made by appellees in their memoranda, submitted to the trial court on August 6,1993. The final order in this case, however, was not entered until November 8, 1993. Appellant had three months in which to submit relevant evidence to the trial court. He did not.

Further, it was appellant who, seven days after the final judgment, filed the notice of appeal, divesting the circuit court of jurisdiction to consider additional evidence in this case. Our role is to review the trial court’s decision in light of the evidence before it at the time the decision was made. See generally, Md.Rule 8-131(a). It is apparent from appellant’s discussion of this issue in his brief that his affidavit addressed facts known tp him from the commencement of this litigation and, further, that the averments in the “second affidavit” are all contained elsewhere in the record.

The trial court did not err in ordering “that the ‘Second Affidavit of John H. Douglas’ shall not constitute any part of the record or record extract for appeal.” B. Appellant contends that the trial court erred in applying Maryland law to the res judicata issues. The trial court found that appellant’s complaint was res judicata because of the decision of the United States District Court for the ¹⁷⁹ Eastern District of Virginia. In determining the preclusive effect of a federal case on state court proceedings, the general rule is that federal law applies; however, when the application of res judicata touches substantive state law issues, such as privity or the legal relationships of parties, we hold that state law applies. Brooks v. Arlington Hosp.

Ass’n, 850 F.2d 191, 195 (4th Cir.1988); Harnett v. Billman, 800 F.2d 1308, 1312-13 (4th Cir.1986), cert. denied, 480 U.S. 932 , 107 S.Ct. 1571 , 94 L.Ed.2d 763 (1987); Spiker v. Capitol Milk Producers Cooperative, Inc., 577 F.Supp. 416, 417-18 (W.D.Va.1983). Spiker squarely addressed the issue of what preclusion law applies when the first judgment is rendered in a federal forum. [SJtate res judicata rules [may well apply] where the principles in question concern substantive rather than procedural policies. In the latter, a federal rule should probably be followed. As to the former, however, Erie R.R. v. Tompkins, 304 U.S. 64 , 58 S.Ct. 817 , 82 L.Ed. 1188 (1938) and its progeny, particularly Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525 , 78 S.Ct. 893 , 2 L.Ed.2d 953 (1958), suggest that state law should govern.

See 18 C. Wright, A. Miller, & E. Copper, Federal Practice and Procedure § 4472 (1981). For example, the concept of “privity” in res judicata doctrine reflects a distinctly substantive policy, because privity arises from “considerations going to stability of legal relationships—not unlike definitions of property.” Restatement (Second) of Judgments § 87 comment b (1980). Spiker, 577 F.Supp. at 418 . See also Arlington Hosp.

Ass’n, 850 F.2d at 195 ; Harnett, 800 F.2d at 1313 (both acknowledging, but not applying, the exception). In Spiker , a passenger car struck a milk truck parked in the emergency lane of a highway; four of the car’s passengers died as a result of the accident. 577 F.Supp. at 417 . The estate of one passenger sued the defendants. The jury returned a defense verdict.

The other plaintiffs in the case then brought suit on the same substantive allegations. “The question thus becomes whether principles of res judicata preclude ¹⁸⁰ this plaintiff not a party to the first suit from relitigating the liability of the defendants.” Id. The court held that whether the plaintiffs were in privity with the plaintiff in the first suit was a substantive question of law, and thus, state law (Virginia law in that case) should be applied when deciding the issue. Appellant makes the disjointed argument that “[sjince the trial court found that Appellant was not in privity with Baker, then the application of res judicata does not touch on privity and thus federal law, not state law, governs the preclusive effects of res judicata (claim or issue preclusion). The trial court made decisions out of sequence.” It is appellant’s argument, not the trial court’s decision, that is out of sequence.

Determining privity or the identification of parties is an element of a res judicata analysis. The court must first decide if privity or some other substantive issue must be decided; if it must, then state law governs. In other words, when determining whether a federal court judgment is res judicata as to a state court proceeding, the court looks to see if privity, the legal relationship of the parties, or some other substantive issue must first be decided; if it must, then state res judicata analysis properly governs. In the case at bar, the preclusion issue is one of more than simply the scope and effect of a prior United States District Court judgment.

See Arlington Hosp. Ass’n, 850 F.2d at 195 . There is a significant issue as to appellant’s privity with the plaintiffs in the federal district court suit or as to whether he was sufficiently involved in that litigation to be considered a party. We have discovered no Maryland cases addressing the issue of whether federal or state law applies in the instant situation.

The federal cases discussed above make a persuasive case for applying state law. We, therefore, hold that identity of parties is a substantive issue that must be decided by applying state law. The trial court, properly determined that Maryland res judicata law applies. C. Appellant alleges that the circuit court erred in determining that he was sufficiently involved in the Virginia action to be ¹⁸¹ considered a party for purposes of res judicata, and argues, therefore, that his circuit court claim is not precluded.

The Court of Appeals addressed the doctrine of res judicata in DeLeon v. Slear, 328 Md. 569, 579-80 , 616 A.2d 380 (1992): In Alvey v. Alvey, 225 Md. 386, 390 , 171 A.2d 92, 94 (1961), this Court set forth the traditional rule of res judicata as follows: “The doctrine of res judicata is that a judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action, and is conclusive, not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit....” The rule is designed to avoid the “ ‘expense and vexation attending multiple lawsuits, conserve judicial resources, and foster reliance on judicial action by minimizing the possibilities of inconsistent decisions.’ ” Murray International Freight Corp. v. Graham, 315 Md. 543, 547 , 555 A.2d 502, 503-504 (1989), quoting Montana v. United States, 440 U.S. 147, 153-154 , 99 S.Ct. 970, 973-974 , 59 L.Ed.2d 210, 217 (1979). Recently, in Major v. First Virginia Bank, 97 Md.App. 520, 533-34 , 631 A.2d 127 (1993), we reiterated the elements of res judicata. Under Maryland law, the requirements of res judicata or claim preclusion are: 1) that the parties in the present litigation are the same or in privity with the parties to the earlier dispute, 2) that the claim presented in the current action is identical to the one determined in the prior adjudication, and 3) that there was a valid final judgment on the merits. Esslinger v. Baltimore City, 95 Md.App. 607, 616-17 , 622 A.2d 774 (1993) (citing Cassidy v. Bd. of Educ., 316 Md. 50, 57 , 557 A.2d 227 (1989)).

See also Jenkins v.