FOSTER (TERRY) VS. FIRST FEDERAL LEASING , ET AL.
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RENDERED: JULY 25, 2008; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-001051-MR
TERRY FOSTER D/B/A
DADDIO'S PIZZA
v.
APPELLANT
APPEAL FROM BULLITT CIRCUIT COURT
HONORABLE RODNEY BURRESS, JUDGE
ACTION NO. 04-CI-00903
FIRST FEDERAL LEASING; AND
MIDWEST LEASING GROUP
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: COMBS, CHIEF JUDGE; KELLER, JUDGE; HENRY, SENIOR
JUDGE.
KELLER, JUDGE: Terry Foster d/b/a Daddio’s Pizza (“Foster”), proceeding pro
se, has appealed from the April 18, 2007, order of the Bullitt Circuit Court
dismissing his claims against First Federal Leasing (“First Federal”) and Midwest
Leasing Group (“Midwest Leasing”) based upon the doctrines of res judicata and
collateral estoppel. We affirm.
This is the second time an appeal from this particular action has been
before the Court of Appeals. Foster’s first appeal was dismissed, as it had been
taken from an order that was not final or appealable. Rather than redraft the
underlying factual and procedural history, we shall adopt the relevant portion from
the first opinion and order:
When the events leading to this litigation began,
Foster - along with his wife, Karen - owned and operated
a pizza restaurant in Lebanon Junction, Kentucky. In
furtherance of this business, Foster agreed to buy a
barbecue cooker from a salesman named Sherman Alex
Ollie, who represented that he worked for a vendor
named Hickory Equipment Company. To fund this
purchase, Ollie contacted Midwest Leasing Group, who
sent him a loan application for Foster to sign. Once
signed, the application was sent by Midwest Leasing to
First Federal for its approval as lessor and funding entity.
First Federal approved the application and agreed to fund
the purchase; the lease agreement was consequently
assigned to First Federal at that time.
On September 21, 1999, Foster signed the lease
agreement for a particular “Kook-Rite-Kooker” and also
signed a “Delivery and Acceptance Receipt”
acknowledging that he had the equipment and was
satisfied with it. It does not appear from the record that
the cooker had actually been delivered or examined by
Foster when he signed these documents, nor does it
appear that he reviewed the documents before signing
them. The record further reflects that Foster received
phone calls from representatives of Midwest Leasing and
First Federal during the following days, and that he
confirmed to them that he had received the equipment
and that it was satisfactory; he also gave First Federal
permission to release the purchase funds to the vendor.
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Eventually, Foster discovered that the new
“Kooker” with which he was supposed to have been
provided was instead a used demonstration model that
Ollie had left uninstalled in an outbuilding behind the
restaurant, and that the serial number thereon did not
match the one in the lease agreement. On November 3,
1999, Foster finally informed First Federal of these facts,
but was told that he was still obligated to make his lease
payments on the equipment, and that his complaints
should be directed to Ollie. However, any efforts by both
parties to get Ollie to rectify the problem ultimately
failed.
Foster's lease payments subsequently became
increasingly delinquent and his lease was eventually
referred to a collection attorney. The Fosters filed suit
against Ollie and First Federal on January 21, 1998
alleging breach of contract, a violation of KRS1 367.170,
fraud, and deceit. First Federal counterclaimed for
breach of contract and requested as damages the entirety
of the amount owed under the lease, as well as costs and
attorney's fees. Prior to trial, the Fosters obtained a
default judgment against Ollie, but the judgment was left
unsatisfied. At trial, the trial court granted directed
verdicts dismissing the Fosters' claims for breach of
contract and fraud against First Federal; the court also
granted a directed verdict on First Federal's breach of
contract claim against the Fosters. Foster and his wife
were consequently adjudged jointly and severally liable
for the entire amount due under the lease and for costs
and attorney's fees. The decision was affirmed on appeal
by this court, and discretionary review was denied by the
Kentucky Supreme Court.
On September 16, 2004, Foster filed another
complaint – this time against First Federal and Midwest
Leasing. The complaint alleged fraud and deceit by both
defendants, in violation of KRS 367.170 and 367.381(2);
conspiracy to defraud; defamation; and a violation of
KRS 355.2A-201(1)(b). On October 11, 2004, First
1
Kentucky Revised Statutes. (Footnote 2 in original.)
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Federal filed a motion to dismiss Foster's complaint
pursuant to CR2 12.02(f) “for failure to state a claim upon
which relief can be granted based upon the doctrines of
res judicata and collateral estoppel.” Specifically, First
Federal argued that Foster's complaint did nothing more
than repeat the allegations made in his first suit against
the company; as these matters had already been fully
litigated, the aforementioned doctrines prevented him
from prosecuting the action again. Midwest Leasing did
not file any pleadings with respect to the motion. On
November 24, 2004, the trial court entered an order
dismissing Foster's action with prejudice “based upon the
doctrines of res judicata and collateral estoppel.”
Foster v. First Federal Leasing, 2006 WL 1944020, 1-2 (Ky. App., July 14, 2006).
The Court of Appeals did not address the merits of Foster’s appeal, but rather
determined that the order on appeal was not final as it did not adjudicate all of the
rights of all of the parties. Specifically, the order did not address Midwest Leasing,
a company that was not involved in the first lawsuit and had not been designated as
being in privity with First Federal. Because the order was not made final pursuant
to CR 54.02, the Court dismissed Foster’s appeal. Foster did not seek review of
the Court’s opinion and order, which became final on September 18, 2006.
Foster quickly brought this Court’s ruling to the attention of the
circuit court by filing a motion to alter, amend, or vacate, or for a new trial, on July
18, 2006. In his motion, Foster requested that the circuit court make the November
24, 2004, order final and appealable. He also included a request that the circuit
court consider the audio tape of the phone call between himself and Lois Berry
from First Federal, which he contended exhibited signs of tampering. In response,
2
Kentucky Rules of Civil Procedure. (Footnote 3 in original.)
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First Federal and Midwest Leasing agreed that the November 24th order should be
amended to show that it was final and appealable. Midwest Leasing also requested
that the circuit court schedule a hearing on the issue of collateral estoppel
regarding Foster’s claims against it. On August 9, 2006, the circuit court opted to
set a hearing pursuant to Midwest Leasing’s request, but declined to make the first
order final and appealable (by crossing out that portion of the suggested order). On
the defendants’ motion, the circuit court indicated that it would accept the
testimony from the November 29, 2000, trial in Action No. 00-CI-00060 in lieu of
live testimony. We note that Foster was represented by counsel during the earlier
proceeding. The tendered trial testimony addressed the relationship between First
Federal and Midwest Leasing. Specifically, Curt McRay, the owner of Midwest
Leasing, testified that his company had an indemnity agreement with First Federal,
as was standard in the industry.
The circuit court permitted the parties to submit proposed findings of
fact and conclusions of law, and then entered an order on April 18, 2007, again
dismissing Foster’s claims. The circuit court first stated that Foster’s claims
against First Federal had been fully and finally adjudicated in the first action,
where he was given the opportunity to litigate issues identical to the ones he raised
in the second action. Therefore, his current claims against First Federal were
barred by the doctrine of res judicata. As to Foster’s claims against Midwest
Leasing, the circuit court determined that Foster should have included those claims
in his first action and was barred from bringing such claims in a later action.
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Accordingly, the circuit court denied Foster’s motion to alter, amend or vacate or
for a new trial, granted Midwest Leasing’s motion to dismiss based upon collateral
estoppel, and dismissed all of Foster’s claims against both First Federal and
Midwest Leasing. The circuit court also awarded First Federal and Midwest
Leasing their taxable costs against Foster. This appeal followed.
On appeal, Foster raises several issues, including arguments that his
claims are not barred by the doctrines of res judicata or collateral estoppel, that his
due process rights were violated when he was denied his right to a jury trial, and
that newly discovered evidence supported his allegation that a cover-up had
occurred. First Federal and Midwest Leasing argue that Foster’s claims are barred
and have requested that this Court impose CR 11 sanctions against Foster.
Because the resolution of this case concerns an issue of law, rather
than an issue of fact, our review is de novo. Western Kentucky Coca-Cola Bottling
Co., Inc. v. Revenue Cabinet, 80 S.W.3d 787, 790 (Ky. App. 2001).
We shall first address whether Foster’s claims against First Federal
are barred by the doctrine of res judicata. “The rule of res judicata is an
affirmative defense which operates to bar repetitious suits involving the same
cause of action.” Yeoman v. Commonwealth, 983 S.W.2d 459, 464 (Ky. 1998). In
City of Louisville v. Louisville Professional Firefighters Ass’n, Local Union No.
345, IAFF, AFL-CIO, 813 S.W.2d 804, 806 (Ky. 1991), the Supreme Court of
Kentucky defined the doctrine as follows: “Under the doctrine of res judicata or
‘claim preclusion,’ a judgment on the merits in a prior suit involving the same
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parties or their privies bars a subsequent suit based upon the same cause of action.”
The City of Louisville Court then cited to Newman v. Newman, 451 S.W.2d 417,
419 (Ky. 1970), in which the former Court of Appeals addressed the elements of
res judicata:
The general rule for determining the question of res
judicata as between parties in actions embraces several
conditions. First, there must be identity of the parties.
Second, there must be identity of the two causes of
action. Third, the action must be decided on its merits.
In short, the rule of res judicata does not act as a bar if
there are different issues or the questions of law
presented are different.
City of Louisville, 813 S.W.2d at 806.
In the present case, the circuit court determined that Foster had been
given a full opportunity to litigate identical claims against First Federal in his first
lawsuit, which was decided on the merits when the circuit court granted directed
verdicts in favor of First Federal. In reviewing the complaints filed in both actions,
it is clear to this Court that Foster is raising the identical causes of action related to
fraud in the lease agreement on the part of First Federal. Accordingly, we agree
with the circuit court that the doctrine of res judicata acts as a bar to Foster’s
current action against First Federal.
Next we shall turn our attention to Foster’s claims against Midwest
Leasing. Although Midwest Leasing was not a party to Foster’s first lawsuit, the
circuit court determined Foster impermissibly split his cause of action by not
bringing his claims against Midwest Leasing in his first action and dismissed his
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claims based on the doctrine of collateral estoppel. We note that while there was
testimony that an indemnity agreement existed between First Federal and Midwest
Leasing, the circuit court did not make a specific finding that the two companies
were in privity.
In Newman, the former Court of Appeals stated:
[I]t has long been recognized that a party may not split
his cause of action[;] therefore, if a cause of action
should have been presented and the party failed to do so
and the matter should again arise in another action, it will
be held that the first action was res adjudicata [sic] as to
all causes that should have properly been presented.
451 S.W.2d at 419. The Court went on to state:
The rule that issues which have been once litigated
cannot be the subject matter of later action is not only
salutary but necessary in the administration of justice.
The subsidiary rule that one may not split up his cause of
action and have it tried piecemeal rests upon the same
foundation. To permit it would not be just to the adverse
party or fair to the court.
Id. citing Hays v. Sturgill, 302 Ky. 31, 193 S.W.2d 648, 650 (1946). The Court
clarified this rule of law in Gilbert v. Bowling Green Bank & Trust Co., 460
S.W.2d 14, 15 (Ky. 1970):
“Where the second action is upon a different
claim, demand or cause of action, the established rule is
that the judgment in the first action operates as an
estoppel only as to the issues, points, or questions
actually litigated and determined, and not as to matters
not litigated in the former action, even though such
matters might properly have been determined therein.”
46 Am.Jur.2nd, Judgments, Sec. 418, pp. 586, 587.
Kentucky adheres to that rule.
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Next, we shall examine the doctrine of collateral estoppel, or issue
preclusion. The Supreme Court of Kentucky described this doctrine in Moore v.
Commonwealth, 954 S.W.2d 317, 319 (Ky. 1997) (citing Sedley v. City of West
Buechel, 461 S.W.2d 556, 599 (Ky. 1970)), as follows:
[A] person who was not a party to the former action nor
in privity with such a party may assert res judicata
against a party to that action, so as to preclude the
relitigation of an issue determined in the prior action.
The rule contemplates that the court in which the plea of
res judicata is asserted shall inquire whether the
judgment in the former action was in fact rendered under
such conditions that the party against whom res judicata
is pleaded had a realistically full and fair opportunity to
present his case.
Continuing to rely on Sedley, the Moore Court listed the essential elements of
collateral estoppel as:
(1) identity of issues;
(2) a final decision or judgment on the merits;
(3) a necessary issue with the estopped party given a full
and fair opportunity to litigate;
(4) a prior losing litigant.
Moore, 954 S.W.2d at 319.
Applying these rules of law to the facts of the present action, we agree
with the circuit court that Foster should have brought his claims against Midwest
Leasing in his first lawsuit, as those claims concern the same causes of action he
alleged in that action. Foster’s claims alleged against Midwest Leasing were
previously litigated in his suit against First Federal and found to be meritless.
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Foster was afforded a full opportunity to litigate those issues in the earlier suit,
despite his argument that the jury was not permitted to make a decision; the circuit
court’s decision to grant a directed verdict was a decision on the merits. Finally,
Foster was a prior losing litigant. Therefore, Foster is not permitted to reassert his
same claims against Midwest Leasing in a separate lawsuit.
First Federal and Midwest Leasing have requested that this Court
impose CR 11 sanctions on Foster, based on what they describe as his blatant
abuse of the legal system. They contend that Foster filed his complaint with the
sole intention to harass them and their attorneys, and point out that Foster admitted
that a number of attorneys refused to accept his case. CR 11 permits a court to
impose sanctions upon an attorney or party who signs a pleading or motion that
violates his certification that:
to the best of his knowledge, information, and belief
formed after reasonable inquiry it is well grounded in fact
and is warranted by existing law or a good faith argument
for the extension, modification or reversal of existing
law, and that it is not interposed for any improper
purpose, such as to harass or to cause unnecessary delay
or needless increase in the cost of litigation.
Having considered the request and based upon our review of the record, including
the circuit court’s order awarding First Federal and Midwest Leasing their taxable
costs, we decline to impose CR 11 sanctions on Foster.
For the foregoing reasons, the judgment of the Bullitt Circuit Court is
affirmed.
ALL CONCUR.
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BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Terry Foster, pro se
Shepherdsville, Kentucky
Eric G. Farris
Shepherdsville, Kentucky
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