Williams v. Peabody

ERVIN, Judge,

concurring in part and dissenting in part.

Although I concur in the Court’s treatment of the “identity of claims” issue, its determination that the necessary “identity of parties” exists between Ms. Peabody and Peabody Home Improvements, and its decision to affirm the trial court’s conclusion that the claims asserted by Mr. Williams against Ms. Peabody and Peabody Home Improvements are barred by the doctrine of res judicata, I am unable to reach a similar conclusion with respect to its discussion of the “identity of parties” question as applied to Mr. Williams and WHF. After carefully reviewing the record in light of the applicable law, I believe that the trial court correctly determined that the necessary “identity of parties” existed in this case with respect to Mr. Williams and WHF and, for that reason, properly granted summary judgment against both Plaintiffs and in favor of both Defendants on res judicata grounds. Given my conclusion that this case can be fully resolved by applying res judicata principles, I see no need to address the extent to which Plaintiffs’ claims are collaterally estopped by determinations made during the course of the prior litigation between certain of the parties to this case. As a result, I concur in the Court’s decision in part and dissent in part.

“Under the doctrine of res judicata, or claim preclusion, ‘a final judgment on the merits in a prior action will prevent a second suit based on the same cause of action between the same parties or those in privity with them.’ ” State ex rel. Tucker v. Frinzi, 344 N.C. 411, 413 , 474 S.E.2d 127, 128 (1996) (quoting Thomas M. McInnis & Assoc. v. Hall, 318 N.C. 421, 428 , 349 S.E.2d 552, 556 (1986)). “For res judicata to apply, a party must ‘show that the previous suit resulted in a final judgment on the merits, that the same cause of action is involved, and that both [the party asserting res judicata and the party *16 against whom res judicata is asserted] were either parties or stand in privity with parties.’ ” Tucker, 344 N.C. at 413-14 , 474 S.E.2d at 128 (quoting McInnis, 318 N.C. at 429 , 349 S.E.2d at 557 ). As a result of the fact that my only disagreement with the Court’s discussion of the res judicata issue stems from its discussion of the “identity of parties” issue and its conclusion that Mr. Williams’ participation in the prior litigation does not operate to bar the claims that have been asserted on behalf of WHF, I will focus the remainder of this concurring and dissenting opinion on that issue.

“The meaning of “privity” for res judicata purposes may be elusive.” Settle v. Beasley, 309 N.C. 616, 620 , 308 S.E.2d 288, 290 (1983). “Indeed, ‘there is no definition of the word “privity” which can be applied in all cases.’ ” Hales v. N.C. Insurance Guaranty Assn., 337 N.C. 329, 333-34 , 445 S.E.2d 590, 594 (1994) (quoting Masters v. Dunstan, 256 N.C. 520, 524 , 124 S.E.2d 574, 577 (1962)). “In general, ‘privity involves a person so identified in interest with another that he represents the same legal right.’ ” Whitacre P’ship v. BioSignia, Inc., 358 N.C. 1, 36 , 591 S.E.2d 870, 893 (2004) (quoting Tucker, 344 N.C. at 417 , 474 S.E.2d at 130 ). “The prevailing definition that has emerged from our cases is that ‘privity’ for purposes of res judicata and collateral estoppel ‘denotes a mutual or successive relationship to the same rights of property.’ ” Hales, 337 N.C. at 334 , 445 S.E.2d at 594 (quoting Settle, 309 N.C. at 620 , 308 S.E.2d at 290 ) (other citations omitted); see also Cline v. McCullen, 148 N.C. App. 147, 150-51 , 557 S.E.2d 588, 591 (2001) (holding that an action brought by a bonding business was barred by a prior judgment entered in a proceeding brought by a bond runner employed by that bonding business on the grounds that the bond runner “was in essence suing for the lost profits of [the bonding business] from whom he derived his commission,” that “this successive or mutual relationship in the same rights in property establishes that the interests of both [the bond runner and the bonding business were] so intertwined that privity exists between them,” and that the bond runner “had a substantial interest [stemming from the sharing of commissions that] constituted a proprietary interest in the judgment”).

In addition:

A person who is not a party but who controls an action, individually or in cooperation with others, is bound by the adjudications of litigated matters as if he were a party if he has a proprietary interest or financial interest in the judgment or in the determination of a question of fact or a question of law with reference to the same subject matter, or transactions-, *17 if the other party has notice of his participation, the other party is equally bound.

Thompson v. Lassiter, 246 N.C. 34, 39 , 97 S.E.2d 492, 496 (1957) (emphasis in original) (quoting Carolina Power & Light Co. v. Merrimack Mut. Fire Ins. Co., 238 N.C. 679, 692 , 79 S.E.2d 167, 176 (1953) (quoting Restatement of Judgments § 84)). Put another way:

“The rule is stated in 50 C.J.S. 318, as follows: ‘A person who is neither a party nor privy to an action may be concluded by the judgment therein if he openly and actively, and with respect to some interest of his own, assumes and manages the defense of the action. A person who is not made a defendant of record and is not in privity with a party to the action may, as a general rule, subject himself to be concluded by the result of the litigation if he openly and actively, and with respect to some interest of his own, assumes and manages the defense of the action, although there is some authority to the contrary.’ ”

Thompson, 246 N.C. at 39 , 97 S.E.2d at 496 . As a result, in a case in which the plaintiff in the former action “is the president and owns all of the stock of [the plaintiff in the present action],” “was personally in control of [both the former action and the present action],” “had the same proprietary interest or financial interest in the judgment in both cases, and was equally concerned with the determination of questions of fact or questions of law pertaining to the contract which was involved in both actions,” the plaintiff in the second action is bound by a judgment rendered against the plaintiff in the prior action even if the parties in question are not in “privity” with each other as that concept is utilized in our res judicata jurisprudence. Enterprises v. Rose, 283 N.C. 373, 377 , 196 S.E.2d 189, 192 (1973); see also Rodgers Builders v. McQueen, 76 N.C. App. 16, 29 , 331 S.E.2d 726, 734 (1985) (holding that an arbitration award was entitled to res judicata effect against an individual “not named as a party to the arbitration” because “he had a strong financial interest in the determination of the issues there because of his ownership interests” in entities that were parties to the arbitration and because “he was an active and controlling participant in the arbitration”), disc. review denied, 315 N.C. 590 , 341 S.E.2d 29 (1986).

In reaching the conclusion that WHF is not bound by the prior judgment in favor of Peabody Home Improvements and adverse to Mr. Williams, the Court focuses on its determination that the record does not contain sufficient evidence that Mr. Williams controlled *18 WHF. 1 In essence, the Court concludes that the trial court’s order with respect to WHF should be reversed on the grounds that res judicata principles have no application to cases involving individuals or entities that were not parties to the prior case in the absence of a finding that one of these individuals or entities “controlled” the other. I am unable to agree with the Court’s exclusive focus upon the presence or absence of “control” because I believe that a proper resolution of the “identity of parties” issue in cases in which there is not a literal identity of parties does not hinge exclusively on the issue of “control.” Instead, I believe that the relevant decisions of the Supreme Court and this Court require us to engage in a two-step analysis in such cases. First, we must determine whether Mr. Williams and WHF were “so identified in interest with another that [they] represent] the same legal right[s],” Whitacre, 358 N.C. at 36 , 591 S.E.2d at 893 , such that they had “ ‘a mutual or successive relationship to the same rights of property.’ ” Hales, 337 N.C. at 334 , 445 S.E.2d at 594 (quoting Settle, 309 N.C. at 620 , 308 S.E.2d at 290 ). In the event that the answer to that initial question is in the affirmative, we need not reach the “control” issue upon which the Court focuses its attention. Cline, 148 N.C. App. at 150-51 , 557 S.E.2d at 591 (stating that, “[although there is insufficient evidence to show that plaintiff controlled the prior litigation . . ., the court’s findings do establish that plaintiff had a substantial interest, which in light of the fifty-fifty sharing of commission [s], constituted a proprietary interest in the judgment” sufficient to trigger a res judicata bar). In the event that the answer to the first question is negative, we must determine whether res judicata principles should be deemed applicable on the basis of “control.” Unless one adopts an approach like that which I have outlined and rejects the approach adopted by the Court, the concept of “privity” becomes co-extensive with the concept of “control,” a result which finds no support in the applicable decisional law, is directly *19 contrary to this Court’s decision in Cline, 2 and which the Court makes no effort to explain or defend. 3

The undisputed evidence before the trial court clearly demonstrates that the legal interests asserted by Mr. Williams and WHF were identical. According to the allegations of the verified complaint filed in the present case, the properties at issue in this litigation “were acquired with funds belonging to the Plaintiffs” and “all funds for improvements and/or repairs to the above described real properties were derived from the Plaintiffs.” Simply put, the allegations set out in the Plaintiffs’ complaint describe the rights of Mr. Williams and WHF as one and the same. For that reason, Mr. Williams and WHF are, in fact, asserting the “same legal rights,” a determination which compels the conclusion that the claims asserted by Mr. Williams and WHF rest on a “ ‘mutual or successive relationship to the same rights of property,’ ” Hales, 337 N.C. at 334 , 445 S.E.2d at 594 (quoting Settle, 309 N.C. at 620 , 308 S.E.2d at 290 ), sufficient to establish the necessary privity for res judicata purposes. As a result, I believe that the undisputed evidence before the trial court at the time of the summary judgment hearing demonstrated the existence of a sufficient identity of legal interests between Mr. Williams and WHF to support application of the doctrine of res judicata for the purpose of barring Plaintiffs’ claims in this case. 4

*20 Thus, I believe that the trial court correctly granted summary judgment in favor of both Defendants and against both Plaintiffs and respectfully dissent from the Court’s determination that the necessary “identity of parties” between Mr. Williams and WHG needed to support an affirmance of the trial court’s order in its entirety did not exist. In addition, I do not believe, given my conclusion that we should affirm the trial court’s decision on res judicata grounds, that we need to determine whether a similar result should be reached on the basis of collateral estoppel principles. I do, however, concur in the Court’s discussion of the “identity of claims” component of the required res judicata analysis, in the Court’s determination that the necessary “identity of parties” exists between Ms. Peabody and Peabody Home Improvements, and in the Court’s decision to affirm the trial court’s determination that Mr. Williams’ claims should be dismissed on res judicata grounds. As a result, I concur in the Court’s opinion in part and dissent in part.

. In its opinion, the Court concludes that the undisputed record evidence shows that Ms. Peabody controlled Peabody Home Improvements to such an extent as to render the two of them “identical” for res judicata purposes. As a result of the fact that I agree with the Court’s conclusion to that effect, I see no need to address the extent, if any, to which Ms. Peabody and Peabody Home Improvement were asserting the same legal rights, thereby obviating any need for a “control” analysis.

. Although Cline involved a proprietorship rather than a corporation, I do not believe that this distinction is a material one, since both Cline and the present case deal with the res judicata effect of a litigation brought by an affiliated individual on subsequent litigation brought by a business, or vice versa.

. The form of analysis adopted by the Court is also substantially undercut by Troy Lumber, in which the Supreme Court held that res judicata effect should not be afforded to a judgment rendered in a previous personal injury action in a subsequent property damage case brought on behalf of a corporation arising from the same accident despite the fact that the personal injury case was prosecuted by the corporate president, chairman of the board, and controlling stockholder acting in his individual capacity. In direct conflict with the Court’s “control-only” approach to resolving “identity of parties” issues, the Supreme Court found that the judgment entered in the individual plaintiff’s personal injury suit was not entitled to res judicata effect despite the fact that he “has at all times since the institution of the [property damage] action had control of it, as he also had control over his” individual personal injury claim. [Troy] Lumber Co. v. Hunt, 251 N.C. 624, 626 , 112 S.E.2d 132, 134 (1960).

. For the reasons set forth in the text, I do not believe that we need to address the “control” issue in order to properly resolve this case. In the event that “control” is, as the Court suggests, critical to the making of a proper decision, I question the correctness of the Court’s conclusion that the person designated as the chief operating officer of a corporate entity is not in “control” of that corporation for res judicata purposes. Although the Court cites Troy Lumber fox the proposition that “[t]he mere fact *20 that one is a shareholder or officer of a corporation is not sufficient to establish privity for purposes of res judicata between the shareholder or officer and the corporation,” I do not believe that Troy Lumber, when read in context, supports the Court’s conclusion with respect to the “control” issue. In fact, the Supreme Court held in Troy Lumber that the corporate officer involved in that case did, in fact, control litigation brought by the corporation and found res judicata principles inapplicable in that case for an entirely different reason. However, given my conclusion that the necessary “identity of parties” exists based on other considerations, I express no opinion concerning the extent, if any, to which the record shows that Mr. Williams sufficiently controlled WHF for res judicata purposes.