North American Specialty Insurance v. Boston Medical Group

WOODWARD, J. This appeal arises from a decision of the Circuit Court for Anne Arundel County granting the motion of appellee, Boston Medical Group (“Boston Medical”), to dismiss the complaint of appellant, North American Specialty Insurance Company (“North American”), on the grounds that the dismissal of a previously filed action between the parties on statute of limitations grounds operated as a bar to the current action under the doctrine of res judicata. On appeal, North American presents one issue for our review, which we have rephrased, as follows: ¹³¹ Does a dismissal by the circuit court of a complaint because it is barred by the applicable statute of limitations constitute a final judgment on the merits, such that a later filed action between the same parties on the same claim is barred under the doctrine of res judicata? Finding no error, we affirm the circuit court’s judgment. BACKGROUND The First Case On May 20, 2004, North American filed a complaint against Boston Medical in the Circuit Court for Anne Arundel County, seeking to recover unpaid deductibles allegedly owed by Boston Medical pursuant to a general liability insurance policy.

Boston Medical is a corporation that imports and distributes medical gloves. North American is the claims administrator for Commercial Underwriters Insurance, which issued a products liability policy to Boston Medical to protect Boston Medical from claims arising out of any adverse effect from the use of latex gloves. The policy contained a $25,000.00 deductible per claim for any settlement or judgment, as well as all legal and investigative fees and costs. During the effective period of the policy, five claims were made against Boston Medical, commencing in 1997.

All five claims were eventually settled or otherwise resolved, and by letter dated June 27, 2003, North American requested reimbursement from Boston Medical for the deductible portion of each claim. 1 The total amount of the deductibles sought by North American was $56,103.74. In its complaint, North American alleged, inter alia: ¹³² 11. That the debt owed to [North American] by [Boston Medical] became due on December 25, 1997. Therefore, [North American] is claiming pre-[j]udgment interest at the legal rate of 6% from the date due of December 25, 1997 thru [the] date of filing, March 30, 2004[,][sic] pursuant to Art[.] 3 § 57 of Constitution of Maryland Annotated Code of Maryland 1981 Replacement Volume and Supplements for a total of 2,287 days at $9.60 per diem for a total of $21,955.20.

North American also included in its complaint a Motion for Summary Judgment and attached an affidavit in support thereof. The affidavit, executed by a representative of North American with “personal knowledge of the facts stated herein,” verified the allegations in the complaint, and expressly swore that $56,103.74 was “justly due and owing,” “plus pre[j]udgment interest] at the rate of 6% per annum per Maryland] Constitution] or $21,955.20.” On June 16, 2004, Boston Medical filed a Motion to Dismiss the complaint. Boston Medical asserted that, because “[North American] claims that the debt to [North American] from [Boston Medical] became due in 1997[,]” and “the statute of limitations for th[e] claim ran in 2000[,]” “[Boston Medical] has no current liability to [North American].” North American did not file an opposition to the motion or an amended complaint. On July 13, 2004, the circuit court issued an order granting Boston Medical’s Motion to Dismiss, but without granting North American leave to amend.

The court stated in the order that its ruling was based upon consideration of Boston Medical’s motion and a “lack of any opposition thereto.” Thereafter, North American filed a Motion for Reconsidera ¹³³ tion, wherein it argued that the case should not have been dismissed because the statute of limitations had not run. 2 North American did not request that the court, in the alternative, grant it leave to amend its complaint. On July 29, 2004, the circuit court denied North American’s Motion for Reconsideration. North American did not appeal the dismissal of its complaint or the denial of its Motion for Reconsideration. The Instant Case On September 10, 2004, North American filed the instant case against Boston Medical in the Circuit Court for Anne Arundel County.

In its complaint, North American alleged the same cause of action, based on the same insurance policy, the same five claims, and the same amount of money due and owing ($56,103.74), as it asserted in the first case. However, in the instant case, North American alleged that it “continued to pay claims on behalf of [Boston Medical] and paid its employees who suffered a loss in December, 1997[,] as late as August 30, 2002[.]” North American further averred that the “[d]eductibles that [North American] seeks to recover arise from payments made as late as August 30, 2002.” 3 North American alleged, however, as it did in the first complaint, ¹³⁴ “[t]hat the debt owed to [North American] by [Boston Medical] became due on December 25, 1997,” and that it was entitled to pre-judgment interest from “the date due of December 25, 1997” until the date of filing of the instant case, in the amount of $23,443.20. Thereafter, on October 6, 2004, Boston Medical filed a Motion to Dismiss the complaint. In its motion, Boston Medical asserted that the dismissal of the first case on statute of limitations grounds precluded North American’s claim in the instant case under the doctrine of res judicata.

North American opposed the motion, arguing (1) that res judicata did not bar the instant action, because a dismissal based on statute of limitations was not an adjudication on the merits, and (2) that dismissal of the first case was “without prejudice.” On January 6, 2005, the circuit court held a hearing on Boston Medical’s Motion to Dismiss. After listening to arguments from both sides, the circuit court ruled from the bench that North American’s claim in the instant case was barred by the doctrine of res judicata. The court stated: It’s an interesting issue. I am going to grant the motion to dismiss.

I believe there was a final determination on the merits. The Court of Appeals may tell me I’m wrong, since it doesn’t look like we have a case right on point here. But I believe that otherwise we could continue to have suit after suit after suit filed. And it is the same cause of action.

The parties are identical. The same figures are in the complaint. And it’s for a breach of contract. And so I am going to grant the motion.

Thereafter, North American noted a timely appeal. DISCUSSION I. Standard of Review The Court of Appeals has explained that, pursuant to Maryland Rule 2 — 322(b)(2), ¹³⁵ a defendant may, in a civil suit in a circuit court, seek dismissal of a case through preliminary motion when the complaint fails “to state a claim upon which relief can be granted.” A defendant asserts in such a motion that, despite the truth of the allegations, the plaintiff is barred from recovery as a matter of law. In ruling on such a motion, the court must assume the truth of all well-pled facts in the complaint as well as the reasonable inferences that may be drawn from those relevant and material facts. Porterfield v. Mascari II, Inc., 374 Md. 402, 413-14 , 823 A.2d 590 (2003) (citations omitted). “When moving to dismiss, a defendant is arguing that even if the pleaded facts are true, the plaintiff is not entitled to recover under the law.

There should be no need to refer to matters that are not in the complaint.” Hrehorovich v. Harbor Hosp. Ctr., Inc., 93 Md. App. 772, 784 , 614 A.2d 1021 (1992). The final sentence of Maryland Rule 2-322(c) provides, however: If, on a motion to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 2-501, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 2-501. In other words, when the court considers matters outside the complaint in ruling on a motion to dismiss, the motion to dismiss shall be treated as one for summary judgment.

See Hrehorovich, 93 Md.App. at 782 , 614 A.2d 1021 (explaining that when the moving party refers to matters outside the complaint, Rule 2-322(c) gives the circuit court the discretion to consider such matters and dispose of the motion to dismiss as one for summary judgment). This result occurs even though (1) the motion is styled as a “motion to dismiss,” as opposed to a “motion to dismiss, or in the alternative, for summary judgment,” see id. at 784 , 614 A.2d 1021 , or (2) the court’s ruling is designated as granting a motion to dismiss, see Haselrig v. Public Storage, Inc., 86 Md.App. 116 , 118 n. 1, ¹³⁶ 585 A.2d 294 (1991) (stating that, despite the language of the court’s order dismissing plaintiffs complaint, the ruling was on the motion for summary judgment, not the motion to dismiss). In the case sub judice, Boston Medical filed a motion to dismiss based on res judicata. Boston Medical attached to its motion certain exhibits from the first case.

The circuit court considered those exhibits in granting Boston Medical’s motion. Therefore, by considering matters outside the complaint, the court converted Boston Medical’s motion to dismiss into a motion for summary judgment. See Hrehorovich, 93 Md.App. at 782 , 614 A.2d 1021 . Accordingly, we will review the instant case to determine if summary judgment was appropriate.

It is well-settled that “[w]hether summary judgment was granted properly is a question of law. The standard of review is de novo and we are concerned with ‘whether the trial court was legally correct.’ ” Lightolier, A Div. of Genlyte Thomas Group, LLC v. Hoon, 387 Md. 539, 551 , 876 A.2d 100 (2005) (citation omitted). Pursuant to Maryland Rule 2 — 501(f), [t]he [trial] court shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law. In doing so, the court must “view[ ] the motion and response in a light most favorable to the non-moving party.” Messing v. Bank of America, N.A., 373 Md. 672, 683-84 , 821 A.2d 22 (2003).

In the instant case, the parties do not dispute the facts. Therefore, we are primarily concerned with an issue of law — whether the circuit court correctly granted summary judgment in favor of Boston Medical on the grounds of res judicata.

II

Res Judicata: Adjudication on the Merits In Colandrea v. Wilde Lake Community Association, Inc., 361 Md. 371, 392 , 761 A.2d 899 (2000), the Court of Appeals summarized the doctrine of res judicata in Maryland, to wit: ¹³⁷ 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 final judgment on the merits. Therefore, 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 decided in the original suit, but also as to matters that could have been litigated in the original suit. To avoid the vagaries of res judicata’s preclusive effect, a party must assert all the legal theories he [or she] wishes to in his [or her] initial action, because failure to do so does not deprive the ensuing judgment of its effect as res judicata. (First emphasis added).

In the case sub judice, it is undisputed that the parties and claim in the present litigation are the same as the parties and claim in the earlier action. The only point of disagreement between the parties is whether the dismissal of North American’s complaint in the first case on the grounds that it was barred by the statute of limitations was an adjudication “on the merits” for the purposes of res judicata. As the circuit court properly pointed out, there is no Maryland appellate case that directly addresses this issue. In Annapolis Urban Renewal Authority v. Interlink, Inc., 43 Md.App. 286 , 405 A.2d 313 (1979), we endeavored to define an adjudication “on the merits” in the context of res judicata.

In Annapolis Urban, a developer, Interlink, Inc. (“Interlink”) entered into a contract with Annapolis Urban Renewal Authority (“AURA”) to construct twenty-two residential townhouses on a parcel of land in the City of Annapolis. See id. at 286-87 , 405 A.2d 313 . A dispute arose between the parties before the project was completed, and the parties entered into an escrow agreement, with each contributing to a fund placed with an escrow agent. See id. at 287 , 405 A.2d 313 .

After the project was finished, Interlink sued AURA for breach of ¹³⁸ contract. See id. Neither party made any reference to the escrow agreement or fund in its pleadings. See id.

AURA filed a motion raising a preliminary objection under Maryland Rule 323 (now Maryland Rule 2-322) on the grounds of sovereign immunity. See id. The circuit court granted the motion and entered judgment for AURA. See id.

Interlink did not appeal. See id. Thereafter, AURA filed a declaratory judgment action, requesting the circuit court to declare that it was entitled to the fund held pursuant to the escrow agreement. See id. at 288 , 405 A.2d 313 .

AURA also filed with its complaint a motion for summary judgment on the grounds of res judicata. See id. The motion was denied and a trial ensued, at which the breach of contract claim that had been previously dismissed was litigated. See id.

Judgment was entered in favor of Interlink. See id. at 289 , 405 A.2d 313 . On appeal, AURA argued that, as a result of the ruling in the first case, it was entitled to prevail in the second action on res judicata grounds. See id.

We agreed, and held that the dismissal of a claim on the grounds of sovereign immunity “is indeed a final judgment on the merits for the purposes of res judicata.” Id. at 291, 405 A.2d 313 . This Court stated that the traditional definition of a judgment on the merits is “one which rules on ‘the real or substantial grounds of action or defense as distinguished from matters of practice, procedure, jurisdiction or form.’ ” Id. at 292 , 405 A.2d 313 (citation omitted). We observed, however, that much scholarly debate over the years “has centered around the effect of various types of judgments entered without a full trial. Some are to be given res judicata effect while others are not.” Id. at 291 , 405 A.2d 313 .

In other words, many judgments are deemed to be on the merits, but do not pass directly on the substance of the claim. “It is a misconception of res judicata to assume that the doctrine does not come into operation if a court has not passed on the ‘merits’ in the sense of the ultimate substantive issues of a litigation.” Id. (citation omitted). Consequently, we articulat ¹³⁹ ed the following definition of adjudication on the merits for res judicata purposes: When a court dismisses an action because of jurisdictional, procedural, or venue problems, it is acting for reasons that do not go to the substance of the case. But, when a court decides that it cannot hear the case because of a legal defense such as sovereign immunity, it is deciding that, as a substantive matter, the plaintiff cannot maintain his [or her] cause of action.

Id. at 294 , 405 A.2d 313 . A. Procedure verses Substance North American’s first argument on appeal is that the dismissal of the first case on statute of limitations grounds was a ruling on a procedural, as opposed to a substantive, ground and, as a result, prosecution of the instant action is not barred by res judicata. In making this contention, North American relies on the Maryland cases of Doughty v. Prettyman, 219 Md. 83 , 148 A.2d 438 (1959), and Carven v. Hickman, 135 Md.App. 645 , 763 A.2d 1207 (2000), aff'd, 366 Md. 362 , 784 A.2d 31 (2001), as well as the U.S. Supreme Court case of Semtek International, Inc. v. Lockheed Martin Corp., 531 U.S. 497 , 121 S.Ct. 1021 , 149 L.Ed.2d 32 (2001). North American’s reliance on these cases is misplaced.

We explain. Doughty, 219 Md. 83 , 148 A.2d 438 , and Carven, 135 Md. App. 645 , 763 A.2d 1207 , are easily distinguishable from the case sub judice, because they did not consider the defense of statute of limitations in the context of the doctrine of res judicata. Doughty simply restated the basic principle of conflicts of law that, in a motor vehicle tort case, substantive law questions are decided under the law of the state where the accident occurred, while “procedural matters,” such as the statute of limitations, are governed by the law of the state in which the litigation is prosecuted. See Doughty, 219 Md. at 88 , 148 A.2d 438 .

Similarly, Carven referred to a statute of limitations only to distinguish it from a statute of repose. See Carven, 135 Md.App. at 652 , 763 A.2d 1207 . We stated in Carven that “ ‘a statute of repose creates a substantive right ¹⁴⁰ in those protected to be free from liability after a legislatively-determined period of time,’ ” while a statute of limitations is “ ‘a procedural device that operates as a defense to limit the remedy available from an existing cause of action.’ ” Id. (citation omitted).

The opinion of the U.S. Supreme Court in Semtek, 531 U.S. 497 , 121 S.Ct. 1021 , 149 L.Ed.2d 32 , is somewhat more complicated. In Semtek , the plaintiff, Semtek International, Inc. (“Semtek”), brought various contract and tort claims against the defendant, Lockheed Martin Corporation (“Lockheed”), in California state court. See id. at 499 , 121 S.Ct. 1021 . The case was removed to federal court based on diversity of citizenship.

See id. The U.S. District Court for the Central District of California then granted Lockheed’s motion to dismiss on the grounds that all of Semtek’s claims were barred by California’s two-year statute of limitations. See id. The U.S. Court of Appeals for the Ninth Circuit affirmed.

See id. Thereafter, Semtek filed an identical lawsuit against Lockheed in the Circuit Court for Baltimore City in order to take advantage of Maryland’s three-year statute of limitations. See id. Ultimately, the circuit court granted Lockheed’s motion to dismiss because, under federal preclusion law, the federal court’s dismissal of Semtek’s claims on statute of limitations grounds was a final judgment on the merits under the doctrine of res judicata.

See id. at 500, 121 S.Ct. 1021 . We affirmed, holding that federal law established the preclusive effect of federal judgments in subsequent identical state court actions, and as a result, the prior dismissal of Semtek’s claims by a federal court on statute of limitations grounds was a judgment on the merits for res judicata purposes, thereby precluding litigation of those claims in Maryland. See id. (citing Semtek Int’l, Inc. v. Lockheed Martin Corp., 128 Md.App. 39 , 736 A.2d 1104 (1999)).

Although the Court of Appeals declined to review our opinion, the U.S. Supreme Court granted certiorari and reversed and remanded. See Semtek,