Cold Springs Farm Development, Inc. v. Ball
Annotate this Case
COLD_SPRINGS_FARM_DEV_V_BALL.94-069; 163 Vt 466; 661 A.2d 89
[Filed 07-Apr-1995]
NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
order that corrections may be made before this opinion goes to press.
No. 94-069
Cold Springs Farm Development, Inc. Supreme Court
On Appeal from
v. Chittenden Superior Court
Rene Ball September Term, 1994
Matthew I. Katz, J.
Craig Weatherly of Gravel and Shea, Burlington, for plaintiff-appellee
Rick Sharp, Burlington, for defendant-appellant
PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.
DOOLEY, J. Defendant appeals two superior court orders denying his
motion to dismiss plaintiff's breach of contract claim and granting summary
judgment in favor of plaintiff. We reverse.
Defendant entered into an agreement to purchase from plaintiff a
business known as the Millhouse Wine Cellar Restaurant. Defendant paid a
$1000 deposit to plaintiff's agent to secure the sale, but refused to
complete the transaction because of concerns about the heating.
Defendant filed a complaint in small claims court against plaintiff's
president and sole shareholder to recover the deposit and attorney's fees.
Defendant claimed plaintiff's president failed to disclose material
information about the sale in a timely fashion. Prior to a hearing in small
claims court, plaintiff filed a complaint alleging breach of contract in
superior court. Plaintiff sought to recover damages resulting from
defendant's failure to complete the agreement, including the contract price,
past and future rent, attorney's fees, and interest. Defendant moved to
consolidate his small claims court action with plaintiff's breach of contract
claim in superior court. Plaintiff opposed this motion, arguing that small
claims actions cannot be transferred to superior court. Defendant's motion
was denied.
The small claims court concluded that defendant failed to complete the
purchase as agreed upon, and plaintiff could retain the deposit. Relying on
the small claims court's decision, plaintiff moved for partial summary
judgment in superior court on the issue of liability. The superior court
granted the motion, concluding under the doctrine of collateral estoppel that
the parties could not relitigate the issue of liability. Thereafter,
plaintiff moved for summary judgment on the question of damages. Plaintiff
filed two affidavits outlining its damages. Defendant opposed the motion and
demanded a jury trial on the issue of mitigation of damages. Defendant
presented no facts contesting the facts set forth in plaintiff's affidavits.
The court granted plaintiff's motion, concluding that defendant had failed to
show there was a triable issue of material fact.
Defendant raises three issues on appeal: (1) collateral estoppel was
improperly used to grant partial summary judgment on liability; (2) res
judicata barred relitigation of the breach-of-contract issue in the superior
court; and (3) summary judgment on damages was improper because he had raised
a genuine issue of material fact.
First, defendant argues the court erroneously applied collateral
estoppel when it granted summary judgment on liability based on the small
claims court's conclusion that defendant had breached the contract.
Collateral estoppel, or issue preclusion, prevents a party from relitigating
an issue that has necessarily been decided in a previous action. Berisha v.
Hardy, 144 Vt. 136, 138, 474 A.2d 90, 91 (1984). Generally, issue preclusion
is appropriate when,
(1) [it] is asserted against one who was a party or in privity with
a party in the earlier action; (2) the issue was resolved by a final
judgment on the merits; (3) the issue is the same as one raised in
the later action; (4) there was a full and fair opportunity to litigate
the issue in the earlier action; and (5) applying preclusion in the
later action is fair.
Trepanier v. Getting Organized, Inc., 155 Vt. 259, 265, 583 A.2d 583, 587
(1990). Defendant does not contest the presence of the first three factors,
but argues that there was not a "full and fair opportunity to litigate the
issue" of liability in the abbreviated and informal procedures of small
claims court, and that it would be unfair to apply issue preclusion in the
superior court.
The purpose of Vermont's small claims court is to provide "a simple,
informal and inexpensive procedure" for determining civil actions where the
amount in controversy is no more than $3500.(FN1) 12 V.S.A. § 5531(a). Our
decisions about small claims court have sought to promote this policy. See
Gerrish Corp. v. Dworkin, 145 Vt. 107, 111, 483 A.2d 261, 263 (1984) (to
carry out legislative purpose, defendant may not force small claims case into
superior court by filing counterclaim above jurisdictional limit);
Ferris-Prabhu v. Dave & Son, Inc., 142 Vt. 479, 480, 457 A.2d 631, 632 (1983)
(small claims proceedings should be as simple and untechnical as possible to
encourage litigants to appear pro se). Our rules reinforce the informality.
Hearings without juries are conducted "in a summary manner," and the
examination of the witnesses is done primarily by the judge, although parties
may supplement the court's questioning. D.C.C.R. 80.3(i). Except for those
with respect to privilege, the Vermont Rules of Evidence do not apply. See
id. The court must "assist the litigants in developing relevant and reliable
evidence." See id. Many of the civil rules, including those authorizing
discovery, do not apply in small claims court. See D.C.C.R. 80.3(a). Much
of the hearing and pre-hearing procedure is intended to encourage appearance
without lawyers by preventing "unfair imposition" on a pro se litigant. See
D.C.C.R. 80.3(i).
Although a decision on whether to find that issue preclusion applies is
usually specific to the individual case, involving a weighing of the relevant
factors, there are categorical exceptions to the general rule. The situation
present here is directly addressed by Restatement (Second) of Judgments §
28(3) (1982) which provides an exception where "[a] new determination of the
issue is warranted by differences in the quality or extensiveness of the
procedures followed in the two courts or by factors relating to the
allocation of jurisdiction between them." Comment d to the section gives as
an example exactly these circumstances:
For example, the procedures available in the first court may have
been tailored to the prompt, inexpensive determination of small
claims and thus may be wholly inappropriate to the determination
of the same issues when presented in the context of a much larger
claim.
We emphasize that the Trepanier standard applies issue preclusion where there
is a "full and fair opportunity to litigate the issue in the earlier action."
Trepanier, 155 Vt. at 265, 583 A.2d at 587 (emphasis supplied). Thus, the
Restatement's exception applies based on the nature of the earlier
proceeding, not how it was actually used by the parties. Put another way,
the informal procedures that were used to deny defendant's claim for the
return of a $1000 deposit are woefully inadequate to support the $131,000
judgment for plaintiff that resulted in superior court.
A variety of other jurisdictions follow the Restatement's approach to
issue preclusion based on small claims judgments. See, e.g., Village Supply
Co., v. Iowa Fund, Inc., 312 N.W.2d 551, 554 (Iowa 1981) (issue preclusion by
small claims judgment not warranted where differences exist in quality or
extensiveness of procedures); Sanderson v. Niemann, 110 P.2d 1025, 1031,
(collateral estoppel can not be based on small claims judgment);(FN2) State
Farm Fire & Cas. Co. v. Emde, 706 S.W.2d 543, 546 (Mo. Ct. App. 1986)
(exception of Restatement § 28(3) applies to small claims judgments); New
Milford Block Company v. Ericson, 206 A.2d 487, 490 (Conn. Cir. Ct. 1964)
(unjust to give preclusive effect to small claims judgment due to informality
of procedure).
We recognize that the small claims proceeding in this case was more
formal than is usual because both sides were represented by counsel. We also
recognize that defendant went forward with the small claims hearing with the
knowledge of the pending superior court action and the
apparent hope that victory in the small claims case would have preclusive
effect on plaintiff's claim in the superior court. In fashioning an issue
preclusion rule, however, we must be concerned about the effect of our
decision on the use of the small claims court by future litigants. As the
Iowa Supreme Court concluded, "Giving preclusive effect to small claims
adjudications in subsequent regular district court trials would be
inconsistent with maintaining the simplicity and informality of small claims
procedures." Village Supply Co., 312 N.W.2d at 554. We are unwilling to
chill the use of small claims court by subjecting plaintiffs in that court to
the risk that a loss on their small claim will mean automatic liability to
the opponent on a much larger claim in superior court.(FN3) Nor are we
willing to encourage even greater resort to lawyers to understand fully the
risks and opportunities presented by using the small claims forum. The trial
court's decisions would inevitably have these effects.
Even if we chose affirmatively not to follow the Restatement rule, there
is a special reason why collateral estoppel should not be invoked for
defendants' small claims judgments. In 1984, responding to the concern about
misuse of counterclaims in small claims court, the
Legislature added 12 V.S.A. § 5533(c), which allows defendants,
counterclaims but only up to the jurisdictional limit of the small claims
court and with the proviso:
The judgment of the small claims court on an asserted counter-
claim shall not be conclusive between the parties in a later action
nor shall the parties be precluded from litigating any issue of fact
or law as a result of the judgment on the counterclaim.
The section expresses the Legislature's policy choice that there be no
collateral estoppel effect from the litigation of small claims counterclaims.
If we refused to follow this policy choice for claims in chief, we would
create an unfair inconsistency in the treatment of claims and counterclaims.
Thus, in this case if plaintiff in the superior court had first asserted its
money damage claim as a counterclaim to the small claims action, and lost, it
would still have been able to bring the superior court action with no
preclusive effect from the negative small claims judgment. By treating
defendant's claim-in-chief differently, we would create an unfair and
unjustified inconsistency. The wiser course is to avoid this inconsistency.
Defendant's second argument on appeal is that the superior court should
have dismissed plaintiff's claim under the doctrine of res judicata, or claim
preclusion, because all of the issues arising from the breach of contract had
been or could have been litigated in small claims court. Specifically, as
evidence that damages were litigated, he cites the small claims court's
decision, which states, plaintiff "may retain all amounts paid as liquidated
and agreed damages for the breach of the agreement by [defendant]."
Defendant interprets this as a decision limiting the damages for all
plaintiff's claims.
Claim preclusion bars litigation of claims or causes of action which
were or might properly have been litigated in a previous action.(FN4) See
Village of Morrisville Water & Light Dep't v. Town of Hyde Park, 140 Vt. 615,
618, 442 A.2d 1288, 1289 (1982). The only
damages litigated in small claims
court, however, were defendant's deposit. Neither the complaint nor the
answer addressed any damages beyond defendant's claim to have the deposit
returned to him. Thus, plaintiff's superior court claims were not actually
litigated in the small claims proceeding. Alternatively, defendant
argues that claim preclusion still prevents plaintiff's action because
plaintiff subverted the intent of the small claims court by failing to pursue
its damages there, even though they arose from the same transaction as
plaintiff's claim. Claim preclusion applies to compulsory counterclaims, not
permissive ones. 6 C. Wright et al., Federal Practice and Procedure § 1420,
at 156 (1990); see also Stratton v. Steele, 144 Vt. 31, 35-36, 472 A.2d 1237,
1239-40 (1984) (defendant's permissive counterclaim will not be barred in
later action by res judicata). There are no compulsory counterclaims in
small claims court. See D.C.C.R. 80.3(a) (V.R.C.P. 13(a) requiring party to
file compulsory counterclaim does not apply to small claims court
proceedings). As set forth above, the Legislature has 9cspecifically
provided that a small-claims defendant "may" file a counterclaim. 12 V.S.A.
§ 5533(c). Thus, plaintiff's claim in superior court was not precluded by
the small claims court action.(FN5)
Reversed and remanded.
FOR THE COURT:
_______________________________________
Associate Justice
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Footnotes
FN1. At the time of the action here, the jurisdictional limit was $2000.
See 1983, No. 208 (Adj. Sess.), § 2. It was increased effective July 1,
1994 by 1993, No. 160 (Adj. Sess.), § 1.
FN2. Sanderson was more recently explained in Perez v. City of San Bruno,
616 P.2d 1287, 1291-92, 168 Cal. Rptr. 114, 118-19 (Cal. 1980). In
California, unlike Vermont, the losing party in small claims court may appeal
to superior court and obtain a de novo trial where normal rules of procedure
and evidence apply. Perez held that collateral estoppel was possible from an
appellate small claims judgment obtained after a trial de novo in superior
court. Id. at 1292, 168 Cal. Rptr. at 119.
FN3. Despite the procedures adopted to make small claims court "user friendly"
to ordinary citizens, it remains a fragile institution that is often
criticized for not accomplishing its purposes. See generally Comment, The
Iowa Small Claims Court: An Empirical Analysis, 75 Iowa L. Rev. 433,
439-52 (1990) (summarizing many studies of small claims court). Studies
have found the court inaccessible to the average citizen and ineffective in
resolving disputes except for collection actions brought by businesses. See
Small Claims Study Group, Little Injustices: Small Claims Courts and the
American Consumer 22 (1972); Steele, The Historical Context of Small Claims
Court, 1981 Am. B. Found. Res. J. 295, 351-54. Although the informal
procedures help, the court is still often seen as foreign and intimidating.
See Frieson, Let's Abolish Small Claims Court 18, 18-19 (Fall 1977). Many
litigants end up using attorneys to file small claims actions abandoning
inexpensive and simple resolution of the matter. See J. Ruhnka, et al.,
Small Claims Court : A National Examination 190 (Nat'l Center for State Cts.
1978). Although we have not had a recent study of small claims court usage
in Vermont, earlier studies showed we shared the barriers to implementation
of the purposes of the court. See Vermont Public Interest Research Group,
The Forgotten Court (1973). Some attempts have been made to improve access.
The Court Administrator publishes a bulletin, entitled Small Claims Court in
Vermont: How to Use It, and makes it available to litigants and potential
litigants to help them decide whether to use the court and to assist them in
the process. In recent years, use of mediation has facilitated the
settlement of many claims without a formal judgment.
FN4. Plaintiff has responded in part that identity of parties is required for
claim preclusion to apply and the parties in the small claims action are not
the same parties as in the superior court action. See First Wisconsin
Mortgage Trust v. Wyman's, Inc., 139 Vt. 350, 358-59, 428 A.2d 1119,
1124-25 (1981). In view of our disposition, we need not reach this
argument.
FN5. Defendant also bases his argument on the fact that he tried to
remove the small claims action to superior court, to join it with plaintiff's
action, but plaintiff successfully resisted this motion. The superior court
refused to allow removal of the small claims case on the basis of Gerrish
Corp. v. Dworkin, 145 Vt. at 111, 483 A.2d at 263. Whether this ruling was
correct or not, we fail to see how plaintiff's resistance aids defendant's
res judicata argument. Assuming identity of parties, plaintiff was entitled
to raise a counterclaim in the small claims court, even though relief was
available only up to the jurisdictional limit, see 12 V.S.A. § 5533(c), or
to present its entire claim in superior court.
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Concurring and Dissenting
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
No. 94-069
Cold Springs Farm Development, Inc. Supreme Court
On Appeal from
v. Chittenden Superior Court
Rene Ball September Term, 1994
Matthew I. Katz, J.
Craig Weatherly of Gravel and Shea, Burlington, for plaintiff-appellee
Rick Sharp, Burlington, for defendant-appellant
PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.
ALLEN, C.J. concurring and dissenting. The majority holds today that
small claims judgments have no preclusive effect on future litigation. I
dissent because this per se rule encourages needless relitigation, wastes
resources of litigants and courts, was not addressed by either party, and
will undoubtedly prove unfair in some cases. I concur with the majority
that seller is not precluded from bringing this breach of contract claim on
the ground that it did not pursue this as a counterclaim in small claims
court. I would reverse the summary judgment on damages only.
Collateral estoppel, or issue preclusion, prevents a party from
relitigating a specific issue that has necessarily been decided in a
previous action. Berisha v. Hardy, 144 Vt. 136, 138, 474 A.2d 90, 91
(1984). The purpose of this doctrine is to promote the finality of
judgments and conserve the resources of courts and litigants. See id. As
the majority notes, issue preclusion is appropriate when,
(1) [it] is asserted against one who was a party or in privity with a
party in the
earlier action; (2) the issue was resolved by a final judgment on the
merits; (3) the issue is the same as one raised in the later action; (4)
there was a full and fair opportunity to litigate the issue in the earlier
action; and (5) applying preclusion in the later action is fair.
Trepanier v. Getting Organized, Inc., 155 Vt. 259, 265, 583 A.2d 583,
587 (1990). The party opposing the use of issue preclusion must show that
relitigation of the issue is appropriate. Id. at 265-66, 583 A.2d at
587-88.
The parties agree on the presence of the first three factors. They
disagree on whether the issue of liability was fully and fairly litigated
in small claims court, and on whether it would be fair to apply issue
preclusion. To determine whether a party has met these two criteria, the
court must look to the specifics of each case and consider several factors,
including (1) the choice of forum, (2) the incentive to litigate, (3) the
foreseeability of future litigation, (4) the procedural opportunities
available in each forum, and (5) the legal standards and burdens employed
in each action. Id. at 265, 583 A.2d at 587.
In this case, buyer selected the small claims forum, and was aware of
the substantial claim in superior court when he chose to proceed in small
claims court. Moreover, buyer knew that the small claims court judgment
might be binding in superior court. Thus, the superior court claim was
foreseeable and provided incentive to vigorously litigate the breach of
contract issue in small claims court. Further, both parties were
represented by counsel in the small claims court action through appeal, and
the substantive law governing the breach of contract claim imposed the same
evidentiary burden in both courts. On this record, I conclude that buyer
has failed to meet his burden of showing that his opportunity in small
claims court was not full and fair, and therefore, he should be precluded
from relitigating the breach of contract issue.
Although in many cases it may be appropriate to allow relitigation of
issues decided by the small claims court, this is not one of them. Rather
than adopt a rule declaring no small claims judgment is final, issue
preclusion should be decided on the facts of each case. See id. Only a
case-by-case approach adequately takes into consideration the underlying
policy
considerations of conserving resources of courts and litigants, and
promoting finality of judgments, while insuring fairness to all parties.
Shaid v. Consolidated Edison Co., 467 N.Y.S.2d 843, 851 (N.Y. App. Div.
1983). The per se rule adopted by the majority today will waste resources
and prove to be unfair in some cases, considerations that might have come
to light had either party addressed such a rule in their briefs.
The majority presents four reasons to adopt the rule that small claims
judgments do not preclude relitigation of issues in subsequent cases.
First, they rely on the Restatement (Second) of Judgments § 28(3) (1982)
and comment d, which states that small claims procedures "may be wholly
inappropriate to the determination of the same issues when presented in the
context of a much larger claim." (Emphasis added.) Illustration 7
indicates further, however, that a finding of a small claims court is not
conclusive because it "operates informally without pleadings, counsel, or
rules of evidence," a rationale that is not necessarily applicable in all
cases.
Second, the majority relies on several out-of-state cases, which
similarly conclude that small claims judgments are not conclusive because
in these proceedings there are no attorneys, no pleadings, no legal rules
of evidence, no juries, and no formal findings. See Sanderson v. Neimann,
110 P.2d 1025, 1030-31 (Cal. 1941); New Milford Block Co. v. Ericson, 206 A.2d 487, 490 (Conn. Cir. Ct. 1964). The Sanderson court specifically
notes that the small claims statute before it required the parties to
represent themselves "without the aid of attorneys." 110 P.2d at 1030. In
contrast to the circumstances illustrated in the Restatement and presented
in Sanderson and New Milford, here, the parties were represented by
counsel, seller had the right to request trial by jury, 12 V.S.A. § 5535,
and the small claims court made formal findings of fact and conclusions of
law. There is nothing before us to indicate that the trial in the small
claims court was in any way inadequate.
The third basis for the majority's per se rule is that 12 V.S.A. §
5533(c) establishes that judgments on small-claim counterclaims have no
preclusive effect. The majority maintains that
it would be inconsistent and unfair not to apply a similar rule to
claims-in-chief. The Legislature has, however, specifically addressed
counterclaims only. Today's rule renders § 5533(c) mere surplusage. See
Trombley v. Bellows Falls Union H.S., 160 Vt. 101, 104, 624 A.2d 857, 860
(1993) (we presume language is inserted in statute advisedly and do not
construe it in way that renders significant part pure surplusage).
Moreover, under Trepanier issue preclusion is applicable only when it would
be fair.
The final reason for the per se rule is that the majority does not
want to chill the use of small claims court by subjecting plaintiffs to the
risk that an adverse small claims judgment will establish liability to the
opponent on a larger claim brought in superior court. Instead, today's
rule will require a party to relitigate the same issues in the more complex
and costly superior court regardless of the nature of the proceedings in
small claims court, the fairness to either party, or the impact on judicial
economy. I therefore dissent.
I would reverse the summary judgment on damages, however, because
seller failed to show that it was entitled to judgment as a matter of law.
See Price v. Leland, 149 Vt. 518, 521, 546 A.2d 793, 796 (1988) (party
moving for summary judgment has burden of proof); V.R.C.P. 56(c) (moving
party must show that there is no genuine issue of material fact and that it
is entitled to judgment as matter of law). Although buyer failed to "set
forth specific facts showing that there is a genuine issue for trial,"
V.R.C.P. 56(e), seller presented no legal theory entitling it to recover
the full contract price plus consequential damages resulting from buyer's
failure to assume seller's leasehold. Seller failed to meet its burden of
proof.
I would affirm the judgment as to liability and reverse and remand the
judgment as to damages.
__________________________________
Chief Justice
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