Crooked Creek III, Inc. v. City of Greenwood et al.

ca02-014

DIVISION IV

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

TERRY CRABTREE, JUDGE

CA02-14

October 9, 2002

CROOKED CREEK III, INC. AN APPEAL FROM SEBASTIAN COUNTY

APPELLANT CHANCERY COURT

V. NO. E2000-310-G (IV)

CITY OF GREENWOOD; EHP CORP.; HONORABLE MARK HEWETT,

AND JOE SIEGMUND CHANCELLOR

APPELLEES

REVERSED AND REMANDED ON DIRECT

APPEAL; CROSS-APPEAL MOOT.

This appeal concerns the doctrine of res judicata. Appellant Crooked Creek III argues that the trial judge erred in applying the doctrine as a bar to its actions against appellees. We agree and reverse and remand. Although the City of Greenwood cross-appeals on an issue regarding breach of contract, our holding on direct appeal renders that issue moot.

In 1995, Crooked Creek developed a residential subdivision on the eastern edge of Greenwood. It planned to provide sewer service to the subdivision by constructing a lift station and force main at a cost of approximately $68,000. However, after several discussions with the city and other developers, Crooked Creek decided to construct a 15-inch gravity flow sewer line at a cost of approximately $198,000. The 15-inch line, which

connected directly to a sewer plant to the west, exceeded what was required for the subdivision alone, but it was envisioned by both Crooked Creek and the city that the new line would benefit future land developments to the east.

In order for Crooked Creek to recover its extra costs on the sewer line, the city passed three "recoupment ordinances." These ordinances provided that landowners who tied on to the new line would be required to pay a tie-on fee, to be collected by the city and remitted to Crooked Creek and its partner, J.L. Clements Construction, Inc.1 Ordinance #545, which was passed on August 7, 1995, stated that "the City of Greenwood has been approached by a group of developers with a proposal that they construct a gravity sewer line to provide sewer services for properties East of the sewer plant," and that the city "feels like it would be in the best interest of the citizens of the City of Greenwood, to have a gravity sewer line, established in this area for future development." The ordinance further stated:

[I]t is anticipated that others in the area of this sewer line will want the use of said sewer line, and it would be unfair to allow others to have the benefit of the line without being in any way responsible for the expenses of said line, and this Ordinance is intended to make arrangements whereby the group of developers financing the initial construction of the line will be compensated for the expenses they have incurred in the construction of said sewer line.

The ordinance then went on to establish a formula for computing the tie-on fees. Finally, the ordinance contained the following language regarding the applicability of the fees:

These additional tie-on fees shall be applicable to anyone connecting either directly, or indirectly, into this line, an extension of this line, or into a pump station which [discharges] directly or indirectly into this line.

The next ordinance, #594, was passed on July 7, 1997. It clarified the location of the new sewer line and to whom the fees should be remitted upon collection. It particularly clarified that the developers participating in the construction of the line were Crooked Creek and J.L. Clements Construction Company. In all other material respects, it was the same as the previous ordinance. The final ordinance, #99-27, was passed in December 1999 to cure certain alleged procedural defects in the prior ordinances (such as lack of hearings or notice). It specifically provided that the city would collect the tie-on fees, deposit them in a bank account, and pay one-half to Crooked Creek and one-half to J.L. Clements. In all other material respects, it was the same as the prior ordinances.

In 1999, the city began efforts to collect tie-on fees from appellees EHP and Siegmund. EHP owned a vast expanse of property to the east of Crooked Creek's subdivision, and Siegmund owned a smaller addition, Ashebury Point, which was enclosed by the EHP property. EHP and Siegmund refused to pay the tie-on fees on the grounds that their property was not covered by the ordinances and that the ordinances were invalid. When the city's collection efforts persisted, EHP threatened to sue the city to have the ordinances declared inapplicable and legally invalid. At that point, the city's mayor, along with city attorney Mike Hamby and the head of the city's sewer department, met to see if they could determine whether the ordinances applied to EHP's property. They concluded that the ordinances did not apply, and Hamby telephoned EHP's counsel to inform him of the city's decision. Counsel informed Hamby that he had already filed a complaint against the city (Docket No. E99-371) but that, in light of the city's decision, he would non-suit it.

On September 16, 1999, EHP filed its "Motion for Nonsuit" in E99-371, stating that, "The City of Greenwood agrees, acknowledges, and maintains that the Greenwood City Ordinances Nos. 545...and 594...do not apply to or affect the property as legally described in Exhibit A attached hereto....Accordingly, Plaintiff moves to dismiss this action without prejudice." The order of dismissal was filed the same day and reads as follows:

Now on this 16 day of September, 1999, the above-styled matter comes before the Court, and the Court being well and sufficiently advised, does find that the parties have agreed to the settlement of all claims in these proceedings, and the Court will thus enter an Order confirming the settlement and agreement of the parties in these proceedings and in accordance therewith, finds as follows:

1. The Plaintiff [EHP] is represented by counsel...and the Defendant, City of Greenwood, has entered its appearance in these proceedings and is represented by its counsel....

2. The Plaintiff is the owner of the property described on Exhibit "A" attached hereto, hereinafter referred to as the "Property." The parties have agreed, and accordingly the Court does hereby order, adjudge and decree that Greenwood City Ordinance No. 545 passed on August 7, 1995 and Ordinance No. 594 passed on July 7, 1997 do not apply to or affect the Property.

3. The Plaintiff's cause of action is hereby dismissed without prejudice.

[Thereafter followed a six-page legal description of the Property].

Following entry of the above order, the city continued unsuccessfully to pursue payment from Siegmund. It was also receiving pressure from Crooked Creek to collect fees from both Siegmund and EHP. This led the city to file a declaratory judgment action against Crooked Creek, EHP, and Joe Siegmund, asking the court to determine the enforceability of the recoupment ordinances and their applicability to EHP and Siegmund. Crooked Creek cross-claimed against EHP and Joe Siegmund for amounts they owed as tie-on fees andcounterclaimed against the city alleging that, by agreeing in the 1999 order that the tie-on fees did not apply to EHP, the city breached its contract with Crooked Creek.

Prior to trial, EHP asserted in a motion for summary judgment that the 1999 order conclusively established that the recoupment ordinances did not apply to EHP's property. The chancellor agreed and granted summary judgment to EHP on the ground of res judicata. That ruling became the basis for the chancellor's findings after trial that, 1) because Siegmund had purchased his property from EHP, the city was estopped to claim that Siegmund's property was subject to the ordinances, and 2) although there was a contract between Crooked Creek and the city, as evidenced by the ordinances, the city did not breach the contract when it allowed the 1999 order to be entered.

The primary issue on appeal, and the one that affects all others, is whether the chancellor erred in granting summary judgment to EHP on the ground of res judicata. Normally, in an appeal from a summary judgment, the evidence is viewed most favorably to the party resisting the motion, and any doubts or inferences are resolved against the moving party. See Aloha Pools & Spas, Inc. v. Employer's Ins. of Wausau, 342 Ark. 398, 39 S.W.3d 440 (2000). But when the pertinent facts are undisputed, as they are in this case, we simply determine whether the appellee was entitled to judgment as a matter of law. B.S.G. Foods v. Multifoods Distrib. Group, 75 Ark. App. 30, 54 S.W.3d 553 (2001).

Res judicata bars relitigation of a subsequent suit when: 1) the first suit resulted in a final judgment on the merits; 2) the first suit was based on proper jurisdiction; 3) the first suit was fully contested in good faith; 4) both suits involve the same claim or cause of action; and 5) both suits involve the same parties or their privies. Smith v. Office of Child SupportEnforcement, 76 Ark. App. 295, 64 S.W.3d 789 (2002). Crooked Creek argues that summary judgment was improperly granted in this case because the order in the prior suit, E99-371, was a dismissal without prejudice rather than a final judgment on the merits. We agree.

A dismissal without prejudice is not an adjudication on the merits and generally will not bar a subsequent action on the same cause. See Magness v. McEntire, 305 Ark. 503, 808 S.W.2d 783 (1991); Benedict v. Arbor Acres Farms, Inc., 265 Ark. 574, 579 S.W.2d 605 (1979); Thornbrough v. Barnhart, 232 Ark. 862, 340 S.W.2d 569 (1960); Fields v. Jarnagin, 210 Ark. 1054, 199 S.W.2d 961 (1947); Jordon v. McCabe, 209 Ark. 788, 192 S.W.2d 538 (1946); see also 46 Am. Jur. 2d Judgments § 611 (2d ed. 1994). The phrase "without prejudice" is "universally understood to preserve to the parties the right to proceed anew in order that the case may be tried on its merits." Thornbrough, 232 Ark. at 866-67, 340 S.W.2d at 571. In the case before us, EHP asked that its action against the city be dismissed without prejudice, and the resulting order did just that. The order expressly stated that EHP's cause of action against the city was dismissed without prejudice. Therefore, under the general rule, the order was not a final adjudication on the merits and had no preclusive effect on a subsequent action.

EHP argues that the general rule has not always been applied, citing Shrieves v. Yarbrough, 220 Ark. 256, 247 S.W.2d 193 (1952). There, a woman who was a defendant in a car accident case moved for a directed verdict at the close of the plaintiff's case. When the directed verdict was granted, she voluntarily non-suited her counterclaim, presumably without prejudice. Later, she tried to file her counterclaim as a separate action, but the supreme court held that she was barred from doing so by the doctrine of res judicata. Shrieves is distinguishable from the case at bar in that the court there premised its decision on the notion that the assertion of a counterclaim in the action was mandatory and that the claims of all parties, arising out of the same traffic accident, should be litigated in one action. There was no real discussion of the res judicata effect of a dismissed action; the holding was based more on the law in effect at the time regarding counterclaims.2

EHP also argues that the language of the 1999 order and the circumstances surrounding its entry show that, despite its characterization as a dismissal without prejudice, it was in fact either a judgment on the merits or a consent judgment reflecting the parties' agreement that the ordinances did not apply to EHP's property. It is readily apparent upon reading the order that it does more than merely award the plaintiff a voluntary non-suit; it states that, "the parties have agreed, and accordingly the Court does hereby order....that...[the recoupment ordinances]... do not affect or apply to the [EHP] Property." The order is somewhat inconsistent in this regard, coupling a determination on the merits with a dismissal without prejudice. However, where such an inconsistency appears, we are reluctant to simply disregard the words "without prejudice." See Magness v. McEntire, supra, where the supreme court declined to give res judicata effect to a summary judgment order dismissing a case without prejudice. We find the following statement to be helpful in resolving this issue:

A doubt as to the meaning of the words "without prejudice" in a judgment may arise where the court, although dismissing the action "without prejudice," makes findingsor otherwise expresses an opinion as to the merits of the case. The doubt stemming from this inconsistency is generally resolved in favor of the view that the words "without prejudice" show that ultimately the court did not determine the merits of the controversy, the emphasis being laid on the use of the words "without prejudice," rather than the fact that there are findings or conclusions on the merits.

46 Am. Jur. 2d Judgments § 613 (2d ed. 1994).

In light of the inclusion of the term "without prejudice" in the 1999 order, we reverse the chancellor's decision to give res judicata effect to that order. Further, because the effect of the 1999 order was a threshold issue as to all of Crooked Creek's claims against EHP, Siegmund, and the city, we reverse and remand the entire case for further proceedings.3

Reversed and remanded on direct appeal; cross-appeal moot.

Stroud, C.J., and Baker, J., agree.

1 Clements's interests were taken over by First National Bank of Fort Smith, who intervened in the action below. Neither Clements nor the bank is a party on appeal.

2 Shrieves has also been distinguished on the ground that it pre-dates the adoption of the Rules of Civil Procedure regarding compulsory counterclaims and voluntary non-suits. See Linn v. Nationsbank, 341 Ark. 57, 14 S.W.3d 500 (2000).

3 The city argues on cross-appeal that the chancellor erred in finding that it had a contract with Crooked Creek. We decline to address that issue because, even if a contract existed, Crooked Creek's action against the city for breach was based upon the city's decision to allow entry of the 1999 order. Because we hold today that the 1999 order had no preclusive effect, any ruling we might make regarding the existence of a contract would have no practical legal ramifications; therefore, we consider the cross-appeal moot.