Williams v. Stewart

WILNER, Chief Judge. The issue before us is whether the Circuit Court for Prince George’s County erred in reinstating a judgment against appellants. The argument is that the court was precluded by the doctrine of res judicata from taking such action. We find no merit in appellants’ assertion.

Procedural History And Underlying Facts In September, 1985, Johanna Stewart filed suit in the Circuit Court for Prince George’s County against appellants, Woodrow and Geraldine Williams, for $28,900 plus interest. The claim was based on appellants’ failure to repay certain loans made to them by Ms. Stewart. On February 13, 1987, after appellants failed to appear at trial, the court entered judgment in favor of Ms. Stewart in the amount of $27,900 plus interest. The judgment reflected a credit of $1,000, which Ms. Stewart acknowledged had been paid on the indebtedness.

A week later, Mr. Williams filed with the court a Suggestion of Bankruptcy, informing the court that, on January 12, 1987, he had filed a single bankruptcy petition in the U.S. Bankruptcy Court for the District of Maryland and that, by virtue of 11 U.S.C. § 362 , all proceedings against him were automatically stayed thereafter. Attached to the Suggestion was a copy of his bankruptcy petition, filed under Chapter 13 of the Bankruptcy Code. For whatever reason, Mr. Williams had not included Ms. Stewart in his list of creditors. On March 11, both appellants noted an appeal from the judgment, alleging in their notice of appeal ⁶²² that, under 11 U.S.C. § 1301 , an automatic stay was in effect with respect to both of them. 1 The problem was eventually brought to the attention of the judge who had entered the judgment, and, on April 13, 1987, he entered an order striking the judgment as a nullity and confirming a voluntary dismissal of appellants’ appeal.

It is clear that his action was based solely on the jurisdictional impediment arising from the automatic stay imposed by reason of the bankruptcy filing. A week later, on April 20, Mrs. Williams filed for bankruptcy under Chapter 11 of the Bankruptcy Code, following which her husband’s case was converted to a Chapter 11 filing as well, and the two eases were consolidated in the Bankruptcy Court. In May, 1987, appellants filed with the circuit court a Notice of Reorganization Case, informing the court of Mrs. Williams’s petition in bankruptcy and the consolidation of the two petitions, representing that the debt upon which Ms. Stewart’s action was based “has been or will be duly scheduled in [the bankruptcy] proceedings,” and asserting that a discharge would constitute a complete release of further obligation of appellants to Ms. Stewart. Ms. Stewart filed a claim in the bankruptcy proceeding, to which appellants filed an objection.

After a hearing on that objection, which appellants did not attend, the Bankruptcy Court allowed the claim in the amount of $35,932 ($27,900 plus interest). Appellants then sought reconsideration, complaining that they had not been notified of the hearing on the claim. At a subsequent hearing, which Ms. Stewart did not attend, Mrs. Williams acknowledged borrowing only $6,000 from Ms. Stewart but contended that the loan had been repaid, relying on the same evidence that had been before the Circuit Court for Prince George’s County. She also pointed out to the ⁶²³ Bankruptcy judge that the circuit court judgment had been stricken.

In that regard, this colloquy occurred: “THE COURT: That order got entered after a trial or what? THE WITNESS: No, there wasn’t any hearing or any trial. We had an attorney as far as I know he went up there, something happened and they got — the other side, Johanna Stewart’s attorney was able to get the order signed. Then we had an attorney who went up there and argued in front of Judge Blackwell why it should be stricken and then Judge Blackwell signed the dismissal.

THE COURT: The second order. They can’t even add, you know. They have things attached that add up to $28,900 and they only entered a judgement for $27,900. Then attached to your motion to reconsider, which is Docket No. 152 is a copy of an order dated April 10, 1987 which you’re saying strikes that February 13 order.

The signatures are the same and the case number is the same, CAL85-13693 in the Circuit court for Prince George’s County- Now, after the order to strike the judgement and to dismiss the appeal that was entered on April 10, 1987 what happened in the Circuit case after that, anything? THE WITNESS: Nothing. Nobody did anything. THE COURT: All right.

Is there anything else you want to say on that? THE WITNESS: No. THE COURT: Thank you. You may sit down. (The witness was excused.) THE COURT: I do not know.

While this order attached to your motion is a xerox copy it contains all of the stamps so that I have no reason to doubt its authenticity and it certainly does strike the order on which the proof of claim is based and I’m bound by the rulings in Prince George’s County as to the validity of the claim. ⁶²⁴ Consequently, I will grant your motion to reconsider and I will deny or sustain your objection to the proof of claim. I am at a loss as to how a party could continue to maintain the validity of the claim in the face of a judgement that struck it but that seems to be what happened and there’s no — out of choice, there’s no one here to dispute that so we start on that basis.” Nothing more transpired with respect to the claim during the bankruptcy proceedings. The bankruptcy case ended on October 10, 1991, when the Bankruptcy Court entered an order dismissing the petitions and lifting the automatic stays. We are told by appellants that the dismissal was due to their failure to file an acceptable disclosure statement and plan of reorganization.

On March 9, 1992, Ms. Stewart filed a motion in the circuit court seeking reinstatement of her judgment. She pointed out that the initial judgment had been stricken because of Mr. Williams’s bankruptcy, that the bankruptcy cases had been terminated without the debt being discharged, and, therefore, that the automatic stay had also terminated. Appellants responded initially with an answer in which they alleged that the Bankruptcy Court order was on appeal and that the automatic stays were still in effect. 2 They followed up in April, 1992 with a motion to dismiss or, in the alternative, for summary judgment, asserting that the matter in issue had been litigated before the Bankruptcy Court and that further litigation was barred by res judicata. In November, 1992, after a hearing at which Mrs. Williams testified, the court rejected the res judicata defense and reentered judgment for the plaintiff in the amount of $24,700 plus interest, giving appellants credit for certain additional payments.

In this appeal, they press the single question of whether “the decision of the United States Bankruptcy Court sustaining the appellants’ objection on the merits to the appel ⁶²⁵ lee’s claim was res judicata and a bar to a subsequent proceeding before the circuit court involving the same claim and the same parties.” Discussion In a nutshell, the doctrine of res judicata means that “a final and valid judgment rendered in one proceeding between two parties operates as a bar in a second proceeding between them on all matters that have been or could have been decided in the original litigation, where the second proceeding involves the same subject matter as the first cause of action.” Cook v. State, 281 Md. 665, 668 , 381 A.2d 671 , cert. denied, 439 U.S. 839 , 99 S.Ct. 126 , 58 L.Ed.2d 136 (1978). In Cicala v. Disability Review Bd., 288 Md. 254, 263 , 418 A.2d 205 (1980), the Court held that “[t]he elements required for the application of the principles of res judicata are that the issue determined in a previous proceeding be identical to that presented in a subsequent proceeding, that the parties in the successive proceedings be the same, and that there be a final judgment of a court on the merits in the previous proceeding.” For purposes of this case, we shall assume that the parties in the circuit court proceeding to reinstate the judgment were the