E-Alert Case Updates

Federal Court Dismisses Case for Res Judicata and Awards Sanctions

Kalos v. Centennial Surety Associates, Inc.
Civil Action No. CCB-12-1532 (D.Md. December 12, 2012)
by Gregory L. Arbogast, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In Kalos v. Centennial Surety Associates, Inc., Judge Blake dismissed Plaintiff’s Complaint on the grounds that it was barred by res judicata and non-mutual defensive collateral estoppel. Additionally, Judge Blake imposed sanctions against Plaintiff for harassing Defendants by filing this lawsuit, which was one of about a dozen lawsuits arising out of a matter that had previously been decided on its merits.

Kalos arose out of construction surety bonds which were surety for a construction project that Brickwood Contractors, Inc. (“Brickwood”) was undertaking for the Federal Bureau of Prisons. Brickwood was owned by Plaintiff Vernon Lee Kalos. Defendants Centennial Surety Associates, Inc. (“Centennial”) and Greenwich Insurance Co. (“Greenwich”) issued the bonds. Plaintiff indemnified the bonds with commercial and residential property that Plaintiff owned. Plaintiff eventually defaulted on the bonds, and Defendants foreclosed on the property.

On May 24, 2006, Plaintiff initiated a fraud action with the Maryland Insurance Administration (“MIA”) against Centennial, but not Greenwich. The MIA found in favor of Centennial. Plaintiff appealed to the Circuit Court, which upheld the MIA. Plaintiff then appealed to the Court of Special Appeals, which also affirmed the MIA. Since the decision in the Court of Special Appeals, Plaintiff has initiated over a dozen lawsuits related to the surety bonds. In fact, one Court even ordered Plaintiff to stop filing lawsuits arising out of this issue. Nevertheless, Plaintiff still initiated this action.

Both Defendants filed motions to dismiss on the grounds that this issue has been litigated previously. With respect to Centennial, which was a party to the MIA action, the Court held that Plaintiff’s claims were barred by res judicata. A claim is barred by res judicata when the parties in the present litigation are the same or in privity; the claim is identical to the prior claim; and there has been a final decision on the merits. Centennial was clearly a party to the MIA action, and it arose out of the same claim. Moreover, the Court held that a decision by the MIA, and an affirmance by two (2) appellate courts was clearly a final decision on the merits. Therefore, the Court granted Centennial’s Motion to Dismiss.

Greenwich, however, was not a party to the MIA action. Nevertheless, the Court held that the claims against Greenwich were barred by non-mutual defensive collateral estoppel. A claim is barred by non-mutual defensive collateral estoppel when: (1) the issue decided in the prior adjudication is identical; (2) there was a final judgment on the merits; (3) the party against whom the doctrine is asserted was a party in the prior adjudication; and (4) that part was given a fair opportunity to be heard on the issue. The Court held that Plaintiff was clearly a party to the MIA action and Plaintiff was given a fair opportunity to be heard. Therefore, Plaintiff should not get a second bite at the apple, merely because Greenwich was a new Defendant. As such, the Court granted Greenwich’s Motion to Dismiss.

In addition to dismissing both Defendants, the Court awarded sanctions for reasonable attorneys’ fees. The Court determined that Plaintiff’s filing of over a dozen lawsuits after an issue had already been fairly litigated was the very conduct that Rule 11 was intended to prevent. Therefore, the Court awarded attorneys’ fees and ordered Plaintiff to cease filing any additional lawsuits arising out of this matter.