Opinion
Civil Docket No.: CL20-150
08-14-2020
Re: American Cigar Factory, LLC v. City of Norfolk
K. Reed Mayo, Esquire Reed Mayo Law Firm, P.C. 4604 Berrywood Road Virginia Beach, Virginia 23464 Adam D. Melita, Esquire Deputy City Attorney 900 City Hall Building 810 Union Street Norfolk, Virginia 23510
K. Reed Mayo, Esquire
Reed Mayo Law Firm, P.C.
4604 Berrywood Road
Virginia Beach, Virginia 23464 Adam D. Melita, Esquire
Deputy City Attorney
900 City Hall Building
810 Union Street
Norfolk, Virginia 23510 Dear Counsel:
Today the Court rules on the demurrer and plea in bar filed by Defendant, the City of Norfolk (the "City"), in response to the amended complaint (the "Complaint") filed by Plaintiff, American Cigar Factory, LLC ("ACF"). In the Complaint, ACF seeks, inter alia, recovery of approximately $240,000 in demolition expenses it paid to the City after the City demolished the American Cigar Factory building (the "Historic Structure"), which stood on certain real property located in the City of Norfolk and owned by ACF (the "Property"). The City demurred to the Complaint, asserting that ACF failed to adequately allege that (1) it had standing to bring the suit and (2) the City lacked the authority to assess demolition costs against ACF or attach associated liens to the Property. The City also asserted a plea in bar, claiming that ACF was barred from pursuing the current suit based on the doctrine of res judicata.
The American Cigar Factory building was constructed in 1903 and is listed on the National Register of Historic Places and the Virginia Landmarks Register. (Am. Compl. ¶ 4.) The building was the site of "a failed but noteworthy 1917 strike by African-American women who worked in the factory under deplorable conditions during World War I." (Id.)
The Court finds that ACF failed to adequately allege that it has standing and that the City lacks the authority to assess demolition costs and attach liens to the Property. Thus. the Court SUSTAINS the demurrer on those bases, but grants ACF leave to amend the Complaint. Further, because the Court finds that a prior related case, which requested a judicial sale of the Property to satisfy outstanding taxes and nuisance abatement liens, did not arise from the same transaction or occurrence—even if the City had properly admitted the prior case record—it OVERRULES the plea in bar based on the doctrine of res judicata.
Background
ACF purchased the Property in September 2014 and developed plans to rehabilitate the Historic Structure. (Am. Compl. ¶ 5.) Because the existing building had fallen into disrepair, ACF reduced the four-story structure to three and a half walls—with no roof—and shored the south-facing wall with steel beams and concrete barriers. (Id. ¶ 6.) On June 29, 2015, ACF received a letter from a city code enforcement official stating that (1) the Historic Structure was "unsafe and uninhabitable"; (2) ACF had thirty-five days to repair the building; and (3) if ACF failed to comply, the Historic Structure would be demolished pursuant to sections 105.4 and 105.9 of the Virginia Uniform Statewide Building Code, Part III. (Id. ¶ 8.) On October 9, 2016, an upper portion of the west-facing brick wall collapsed during a hurricane. (Id. ¶ 10.) Three days later, the City notified ACF that it intended to demolish the remaining portion of the west wall, which the City claimed was in imminent danger of collapse, and the City later wrote—apparently on the same day—that it intended to demolish all structures on the Property. (Id. ¶ 11.) At an October 14 hearing, the Court granted a temporary injunction enjoining the City from demolishing the Historic Structure and allowing ACF to make necessary repairs, which included bracing the west wall. (Id. ¶ 13.) The Court subsequently heard testimony from engineers on behalf of both ACF and the City that the bracing repairs were successful and that the Historic Structure was safe. (Id. ¶ 14.)
The remaining structure also included "stairway shafts, [an] elevator shaft, and [a] hoist way shaft." (Am. Compl. ¶ 6.)
On November 21, 2016, the City and ACF entered into a settlement agreement (the "Settlement Agreement"), which allowed the City to demolish "any and all structures on the Property at its discretion" if ACF did not (1) commence construction within 150 days and (2) provide written letters of intent from lenders and tax credit purchasers within 120 days. (Id. ¶ 15-17 & Ex. 1.) On April 21, 2017, ACF received an email from a Deputy City Attorney stating that, "in accordance with the terms of the Settlement Agreement . . . , the City will exercise its rights to demolish any and all structures on the property that is the subject of the Settlement Agreement." (Id. ¶ 21.) ACF again sought a temporary injunction enjoining the City from demolishing the Historic Structure. (Id. ¶ 22.) At the related hearing, the Court found that ACF was unlikely to establish compliance with the Settlement Agreement and therefore denied the request for preliminary injunctive relief. (Id. ¶ 24.) In May 2017, the City demolished the Historic Structure, assessed the related costs (the "Demolition Costs") against ACF, and attached associated liens to the Property. (Id. ¶ 25-26.)
On October 24, 2017, ACF entered into an agreement to sell the Property to S.L. Nusbaum Realty Co. (the "Nusbaum Sale"). (Id. ¶ 27.) On July 12, 2018, the City filed an action against ACF to sell the Property to recover delinquent real estate taxes and amounts owed under the nuisance abatement liens (the "Lien Sale Case"). (Id. ¶ 28 (referring to Case Number CL18-5835).) On January 24, 2019, the City and ACF entered into a "Forbearance and Release Agreement" (the "Forbearance Agreement"), which provides, inter alia, that if the City was paid the outstanding amount it claimed it was owed at the time of the Nusbaum Sale—in terms of real estate taxes, nuisance abatement levies, interest, and penalties—then the City would refrain from collecting any unpaid taxes or acting on any liens against the Property. (Id. ¶¶ 29-30 & Ex. 4.) The Forbearance Agreement also provides that "ACF shall have the right to later contest the fact or amount of such Real Estate Taxes, Nuisance Abatement Levies, and other charges as and when provided by law." (Id. Ex. 4.) At the Nusbaum Sale closing on December 19, 2019, ACF paid all amounts claimed—more than $240,000—to the City. (Id. ¶ 31; June 4, 2020, Hr'g Tr. ("Tr.") 82.) ACF contends that as a result of its "overpayment" to the City, two creditors who had liens on the Property were not paid the full amounts to which they otherwise were entitled. (Am. Compl. ¶ 32.) ACF claims that it assigned the net proceeds of this action to those creditors. (Id.) After the Nusbaum Sale, the City moved to voluntarily dismiss the delinquent-tax case with prejudice, and the Court entered a final dismissal order on December 30, 2019. (Tr. 22 (referring to the order in the Lien Sale Case).)
ACF filed a complaint seeking, inter alia, reimbursement of the Demolition Costs. It claims that although the City had the right to demolish the Historic Structure, it was not authorized to assess the costs against ACF or attach associate liens to the Property. The City filed a "Demurrer and Plea in Bar," ACF filed "ACF's Hearing Memorandum" in response, and the Court subsequently held a hearing (the "Hearing"). At the conclusion of the Hearing, the Court took the matter under advisement.
Positions of the Parties
The City's Position
The City argues that ACF has not sufficiently alleged that it was injured and that it therefore lacks standing to bring this claim. (Def.'s Plea in Bar & Dem. ¶ 48.) Specifically, it asserts that ACF has not alleged that it paid the Demolition Costs; rather, it appears from the Complaint that S.L. Nusbaum Realty Co. ("Nusbaum"), the purchaser of the Property in December 2019, paid the City. (Id. ¶ 4.) ACF also claims to have assigned the net proceeds of this action to two creditors to vindicate its rights. (Am. Compl. ¶ 32.) The City contends that ACF is not an attorney-at-law for these creditors and therefore cannot "stand in the[ir] shoes." (Def.'s Plea in Bar & Dem. ¶ 50.) Because ACF has not alleged an injury and cannot represent the creditors, the City argues that the Complaint should be dismissed because ACF lacks standing. (Id. ¶ 51.)
The City also asserts that the "existence of and extent of the exact same liens" currently in dispute were litigated in 2018 during the Lien Sale Case. (Id. ¶ 23.) According to the City, the parties entered into the Forbearance Agreement to forestall a decision by the Court regarding the Lien Sale Case, which ended in a dismissal with prejudice. (Id. ¶ 24.) The City argues that, under Rule 1:6 of the Rules of Supreme Court of Virginia and the doctrine of res judicata, ACF is barred from bringing any claim related to the liens or expenses involved in the Lien Sale Case, i.e., the same liens that are the subject of the Forbearance Agreement. (Id. ¶ 25.) Additionally, in response to ACF's claim that it reserved in the Forbearance Agreement the right to challenge the City's entitlement to the liens and their amounts, the City asserts that the relevant provision of the agreement relates only to the "fact or amount" of any liens and not whether the City had the legal authority to attach liens to the Property in the first place. (Id. ¶ 25 & n.3.)
The City further contends that ACF failed to allege that the City was operating outside of its legal authority under sections 2(16) and 89 of the Norfolk City Charter by assessing the Demolition Costs against ACF. (Id. ¶ 31; Tr. 17.) The City contends that ACF offers no factual support for its legal conclusion that the City had no legal authority to assess the Demolition Costs, and the City points out that section 2(16) explicitly grants it authority to remove nuisances "at the expense of the person or persons causing the same, or of the owner or the occupant of the ground or premises wherein the same may be." (Def.'s Plea in Bar & Dem. ¶¶ 27-28.) Additionally, the City argues that the absence of a provision in the Settlement Agreement explicitly authorizing the City to assess the Demolition Costs against ACF is "meaningless" because sections 2(16) and 89 already authorize the City to assess such costs and attach associated liens. (Id. ¶ 29; Tr. 17.) According to the City, this authority is legislatively granted and cannot be impliedly waived by failing to preserve it in a settlement agreement. (Def.'s Plea in Bar & Dem. ¶ 30.)
ACF's Position
During the Hearing, ACF provided certain evidence that the Demolition Costs were paid as part of the Nusbaum Sale "from Seller's funds," i.e., from ACF's funds, as ACF was required to provide a clear title regarding the Property to Nusbaum as part of the sale. (Tr. 62-63.) As such, ACF claims that it did in fact pay the Demolition Costs—via an escrow agent—and that it therefore has standing to pursue this action. (Tr. 82.)
ACF also asserts that because the Lien Sale Case concluded via a consent dismissal with prejudice, only the City—as the plaintiff in the Lien Sale Case—is prohibited from bringing another related claim; as ACF noted, "Because [ACF] never brought a claim, it is not barred." (Tr. 86.) Further, ACF contends that the entire record of the prior litigation must be brought into the case as evidence in order for the City to assert a claim of res judicata. (Tr. 88.)
ACF further alleges that "[t]he City had no lawful authority to assess the costs of demolition against ACF or the Property under the Settlement Agreement or otherwise" and that, even if it did, the City was prohibited from attaching any associated liens to the Property because "it failed to comply with the notice requirements set forth in Va. Code § 15.2-906." (Am. Compl. ¶¶ 34-35.) ACF claims that during previous proceedings, the City relied exclusively on the Settlement Agreement as the source of its legal authority to demolish the Historic Structure. (Id. ¶ 23.) And because the Settlement Agreement is silent on the issue of demolition expenses, ACF claims it is a due process violation for the City to now rely on the Norfolk City Charter as the basis for assessing the Demolition Costs against ACF. (Tr. 77-80.) Accordingly, ACF asserts that the City is judicially estopped from relying on sections 2(16) and § 89 of the Norfolk City Charter. (Tr. 76.) Further, ACF claims that section 2(16) is facially unconstitutional because the "ancient" charter lacks a notice provision, which is a violation of due process. (Tr. 76, 79.) Even if the charter provisions were constitutional, ACF maintains that they are still inapplicable because they only apply to nuisances, and there was nothing alleged in the Complaint or presented at the Hearing declaring the Property a nuisance. (Tr. 80.)
ACF does not raise this issue in the Complaint, so the Court need not address the constitutionality of section 2(16) of the Norfolk City Charter in this letter opinion.
Analysis
Legal Standard
A demurrer tests the legal sufficiency of the claims stated in the pleading challenged. Dray v. New Mkt. Poultry Prods., Inc., 258 Va. 187, 189, 518 S.E.2d 312, 312 (1999). On demurrer, the court must admit "the truth of all material facts that are properly pleaded, facts which are impliedly alleged, and facts which may be fairly and justly inferred from alleged facts." Cox Cable Hampton Rds., Inc. v. City of Norfolk, 242 Va. 394, 397, 410 S.E.2d 652, 653 (1991). A demurrer does not admit the correctness of any conclusions of law, however. Ward's Equip., Inc. v. New Holland N. Am., Inc., 254 Va. 379, 382, 493 S.E.2d 516, 518 (1997).
Even if imperfect, a complaint drafted such that a defendant cannot mistake the true nature of the claim should withstand demurrer. CaterCorp, Inc., v. Catering Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279 (1993). The court will not consider any factual assertions not included in the pleading being attacked, or its accompanying exhibits, for purposes of a demurrer. See id. at 24, 431 S.E.2d at 279. If a court sustains a demurrer, the court has discretion to allow leave to amend the complaint, and such leave "shall be liberally granted in furtherance of the ends of justice." Va. Sup. Ct. R. 1:8.
"A plea in bar presents a distinct issue of fact which, if proven, creates a bar to the plaintiff's right of recovery," and "[t]he moving party has the burden of proof on that issue." Hilton v. Martin, 275 Va. 176, 179, 654 S.E.2d 572, 574 (2008). The function of a plea in bar "is to narrow the litigation by resolving an issue that will determine whether a plaintiff may proceed to trial on a particular cause of action." Hawthorne v. VanMarter, 279 Va. 566, 578, 692 S.E.2d 226, 234 (2010). "The issue raised by a plea in bar may be submitted to the circuit court for decision based on a discrete body of facts identified by the parties through their pleadings, or developed through the presentation of evidence supporting or opposing the plea." Id. at 577, 692 S.E.2d at 233.
To determine whether an individual has standing, the Court must consider "whether he has a sufficient interest in the subject matter of the case so that the parties will be actual adversaries and the issues will be fully and faithfully developed." Cupp v. Bd. of Supervisors, 227 Va. 580, 589, 318 S.E.2d 407, 411 (1984).
"A party whose claim for relief arising from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence . . . ." Va. Sup. Ct. R. 1:6(a). "A claim for relief pursuant to this rule includes those set forth in a complaint, counterclaim, cross-claim or third-party pleading." Id.
The Norfolk City Charter gives the City the power "[t]o compel the abatement and removal of all nuisances within the city or upon property owned by the city beyond its limits at the expense of the person or persons causing the same, or of the owner or occupant of the ground or premises whereon the same may be." Norfolk City Charter § 2(16). It also provides for "a lien on all real estate and on each and every interest therein for the city taxes assessed thereon" and "a lien on any land or premises for the amount of expense incurred by said city in abating any nuisance thereon." Id. § 89.
The Forbearance Agreement provides as follows: "ACF shall have the right to later contest the fact or amount of such Real Estate Taxes, Nuisance Abatement Levies, and other charges as and when provided by law. Notwithstanding ACF's statutory right to contest the amount of Real Estate Taxes, Nuisance Abatement Levies, and other charges, ACF at closing shall pay the amount determined by the City as then due and owing." (Am. Compl. Ex. 4.)
Discussion
The Court has considered the pleadings, evidence and oral arguments presented at the Hearing, and applicable authorities. During the Hearing, the parties narrowed the outstanding issues to standing, res judicata, and the source of the City's power to assess the Demolition Costs against ACF and attach liens to the Property. The Court addresses these seriatim. A. ACF Has Not Adequately Alleged That It Has Standing to Pursue the Complaint.
In its demurrer and plea in bar, the City also asserts that (1) ACF is not entitled to a jury trial as demanded, (2) ACF failed to set forth the basis for its claim for attorney's fees as required by Rule 3:25(b) of the Rules of Supreme Court of Virginia, and (3) ACF is precluded from challenging the City's right to demolish the Historic Structure. (Def.'s Plea in Bar & Dem. ¶¶ 18, 52-57.) In its pre-hearing memorandum, ACF (1) waived its right to a jury trial, (2) withdrew its claim for attorney's fees, and (3) "stipulate[d] for purposes of this action that the City had the right to demolish the [H]istoric [S]tructure." (ACF's Hr'g Mem. 2.) The Court therefore SUSTAINS the City's demurrer and plea in bar with respect to these issues.
The City asserts that ACF failed to adequately allege that it paid any portion of the Demolition Costs. Further, ACF claims to be suing to vindicate the rights of two creditors that were allegedly harmed. The City argues that because ACF has not alleged facts to demonstrate that it has suffered harm and cannot stand in the shoes of its creditors, ACF lacks standing to pursue the Complaint.
In Cupp v. Board of Supervisors, the Supreme Court of Virginia opined that "[t]he point of standing is to ensure that the person who asserts a position has a substantial legal right to do so and that his rights will be affected by the disposition of the case." 227 Va. 580, 589, 318 S.E.2d 407, 411 (1984). In other words, the plaintiff must have "'a justiciable interest' in the subject matter of the litigation." Bd. of Supervisors v. Fralin and Waldron, Inc., 222 Va. 218, 223, 278 S.E.2d 859, 862 (1981) (quoting Lynchburg Traffic Bureau v. Norfolk & W. Ry. Co., 207 Va. 107, 108, 147 S.E.2d 744, 745 (1966)). Virginia has adopted the test for standing established by the U.S. Supreme Court in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). See, e.g., Philip Morris USA Inc. v. Chesapeake Bay Found., Inc., 273 Va. 564, 577, 643 S.E.2d 219, 226 (2007). To demonstrate standing, (1) the plaintiff must have suffered an actual "injury in fact," i.e., a violation of a legally protected interest in a concrete—as opposed to a hypothetical—manner; (2) there must be a causal connection between the injury and the defendant's actions; and (3) a favorable decision would likely redress the plaintiff's injury. Lujan, 504 U.S. at 560-61. As a result, it is more difficult for a plaintiff to establish standing to vindicate the rights of third parties as opposed to its own rights. Id. at 562.
It is unclear from the face of the Complaint who paid the Demolition Costs. ACF uses passive voice to describe payment of the Demolition Costs, making it unclear whether ACF or Nusbaum paid these costs. ACF clarified the issue at the Hearing by offering proof—via testimony and documentary evidence—that it paid the Demolition Costs at the Nusbaum Sale closing and therefore suffered the alleged injury. Although there appears to be sufficient evidence to support ACF's assertion, this is not clear on the face of the Complaint. Even admitting the truth of all material facts properly pleaded, the allegations related to payment of the Demolition Costs do not clearly establish ACF's standing. Hence, the Complaint cannot withstand demurrer.
Specifically, ACF alleges in the Complaint that, as part of the Nusbaum Sale, "the City was paid all amounts it claimed to be due, including over $240,000 in nuisance abatement liens resulting from the City's attempted and actual demolition of structures on the Property." (Am. Compl. ¶ 31.)
The Court therefore sustains the demurrer based on ACF's lack of standing but grants ACF leave to amend the Complaint to address this issue. B. The Instant Action Is Not Precluded Under Principles of Res Judicata.
In support of its plea in bar that the current suit is precluded based on the doctrine of res judicata, the City asks the Court to take judicial notice of the Lien Sale Case. Procedurally, the Court cannot sustain the plea in bar based on res judicata because the Court has not been presented the record from the previous case, and it lacks the authority to take judicial notice of the prior litigation for purposes of res judicata. As the Virginia Supreme Court noted in an analogous situation, "The fact that the previous action had been tried in the same court by the same judge did not dispense with the necessity of proof of the record in the previous action. . . . To sustain a claim of res judicata the court will not take judicial notice of the record in the first suit." Anderson v. Patterson, 189 Va. 793, 798-99, 55 S.E.2d 1, 3 (1949).
Although the City appeared to take the position at the Hearing that res judicata is an issue properly resolved on demurrer, such resolution requires—at a minimum—proof of the record in the prior case. Hence, the issue is more appropriately resolved via a plea in bar. See Kent Sinclair & Leigh B. Middleditch, Virginia Civil Procedure § 9.8 (6th ed. 2014) (recognizing a plea in bar as the appropriate pleading to raise a claim of res judicata).
Although admissions in the pleadings or a stipulation of counsel might in certain cases dispense with the need to produce the entire record, generally only an inspection of the entire record associated with the first case can disclose whether the issue in dispute in the instant case was settled between the identical parties in the previous litigation.
The City has not filed a motion to incorporate the record from the prior litigation into the present case. The only elements of the record from the previous case offered by the parties and currently in the file are a transcript excerpt from the April 26, 2017, hearing and several documentary exhibits, including the Settlement Agreement and the Forbearance Agreement. Although these documents are significant and material to both cases, the Court has been presented with an incomplete record of the previous action. Without authority to take judicial notice of the prior record, the Court cannot sustain a plea in bar on res judicata grounds absent presentation of the complete record from the prior litigation.
Even had the Court been presented a complete record of the previous case, arguendo, a claim of res judicata likely would not prevail. Generally, "[r]es judicata encompasses four preclusive effects, each conceptually distinct, which a final personal judgment may have upon subsequent litigation. These are merger, direct estoppel, bar, and collateral estoppel." Bates v. Devers, 214 Va. 667, 670, 202 S.E.2d 917, 920 (1974) (citing Lawlor v. Nat'l Screen Serv. Corp., 349 U.S. 322, 326 n.6 (1955)). These four preclusive effects can be segregated into two categories: claim preclusion and issue preclusion. See Taylor v. Sturgell, 553 U.S. 880, 892 (2008).
Issue preclusion bars parties from relitigating the same factual issue between the same parties. Funny Guy, LLC v. Lecego, LLC, 293 Va. 135, 142, 795 S.E.2d 887, 890 (2017). Collateral estoppel and direct estoppel are in this category. Lee v. Spoden, 290 Va. 235, 246, 776 S.E.2d 798, 803-04 (2015). For example, "[u]nder the concept of collateral estoppel, 'the parties to the first action and their privies are precluded from litigating [in a subsequent suit] any issue of fact actually litigated and essential to a valid and final personal judgment in the first action.'" Rawlings v. Lopez, 267 Va. 4, 4-5, 591 S.E.2d 691, 692 (2004) (quoting Norfolk & W. Ry. v. Bailey Lumber Co., 221 Va. 638, 640, 272 S.E.2d 217, 218 (1980)).
"Under the doctrine of claim preclusion, a final judgment forecloses 'successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit.'" Taylor, 553 U.S. at 892 (quoting New Hampshire v. Maine, 532 U.S. 742, 748 (2001)). Merger and bar are subsets of this category. Lee, 290 Va. at 245, 776 S.E.2d at 803.
The Rules of Supreme Court of Virginia address claim preclusion. Rule 1:6 states, in pertinent part, that "[a] party whose claim for relief . . . is decided on the merits by a final judgment, shall be forever barred from prosecuting any second [claim] against the same opposing party . . . that arises from that same conduct, transaction or occurrence." Va. Sup. Ct. R. 1:6(a). The rule goes on to point out that a "claim for relief" includes "a complaint, counterclaim, cross-claim or third-party pleading." Id.
Virginia courts have applied Rule 1:6 using a three-part test. First, the court asks whether the prior case has been decided on the merits by a final judgment. See Lee, 290 Va. at 247-48, 776 S.E.2d at 804-05. Second, the court analyzes whether the parties in the two actions are the same or in privity. See id. at 248, 776 S.E.2d at 805. Finally, the court determines whether the prior claim arises from the same transaction or occurrence as the current claim. See id. at 248-50, 776 S.E.2d at 805-06. This third prong involves a "practical analysis" of the facts of the two cases in order to "uncover[] the true underlying dispute between the parties." Funny Guy, 293 Va. at 154-55, 795 S.E.2d at 897. Notably, claim preclusion "treats unasserted claims as being subsumed in the disposition of the related, previously adjudicated, claims." Id. at 143, 795 S.E.2d at 890 (quoting Kent Sinclair & Leigh B. Middleditch, Jr., Virginia Civil Procedure § 14.11[B][5], at 1214 (6th ed. 2014)). A final judgment on the merits not only concludes questions actually raised and decided by the parties but also "every claim which properly belonged to the subject of litigation" and which, through reasonable diligence, should have been raised at the time. Id. at 147, 795 S.E.2d at 893 (quoting Smith v. Holland, 124 Va. 663, 666, 98 S.E. 676, 677 (1919)). Thus, if an underlying dispute arising out of the same transaction or occurrence produces multiple legal claims that can be joined in a single suit, they should be joined. Id at 150, 795 S.E.2d at 895. Further, for purposes of barring future claims, it is irrelevant whether the second suit brings new legal theories or would require evidence not present in the first suit; the subsequent claims are nevertheless barred. See id. at 155, 795 S.E.2d at 897.
1. The Prior Case Was Decided on the Merits by a Final Judgment.
Here, the prior Lien Sale Case concluded with the City's voluntary dismissal, with prejudice, after the City received payment for delinquent real estate taxes and the Demolition Costs. This voluntary dismissal constitutes a final judgment on the merits. Generally, "a judgment of dismissal which expressly provides that it is 'with prejudice' operates as res judicata and is as conclusive of the rights of the parties as if the suit had been prosecuted to a final disposition adverse to the plaintiff." Va. Concrete Co. v. Bd. of Supervisors, 197 Va. 821, 825, 91 S.E.2d 415, 418 (1956). Further, a dismissal with prejudice extinguishes the viability of the plaintiff's claim against the dismissed party, even if the dismissal is not based on an adjudication of the merits of the cause of action. Hughes v. Doe, 273 Va. 45, 49, 639 S.E.2d 302, 304 (2007).
For example, the Virginia Supreme Court upheld a voluntary dismissal with prejudice on the basis of res judicata in Reed v. Liverman. 250 Va. 97, 100, 458 S.E.2d 446, 447 (1995). There, Liverman filed two suits against Reed that sought payment on the same promissory note. Id. at 98-99, 458 S.E.2d at 446. After Liverman successfully moved to have the first case dismissed with prejudice, Reed filed a plea of res judicata in the other suit. Id. at 99, 458 S.E.2d at 447. The Virginia Supreme Court opined that although Liverman's actions may have been "ill-advised and the consequences of his actions unintended," the dismissal with prejudice barred his second claim. Id. at 100, 458 S.E.2d at 447. In the instant case, the prior Lien Sale Case was voluntarily dismissed with prejudice after the parties executed the Forbearance Agreement. Similar to the facts in Liverman, the voluntary dismissal of the Lien Sale case with prejudice clearly constituted a final judgment for res judicata purposes.
2. The Parties in the Two Actions Are the Same.
It is undisputed that the City and ACF are the same parties that litigated the Lien Sale Case, although ACF is now the plaintiff. Although this distinction may appear insignificant, ACF contends that its current claim is not barred by res judicata because it was the defendant in the Lien Sale Case and thus never had the opportunity to assert a claim for relief. The plain language of Rule 1:6 does not expressly address whether res judicata applies when a former defendant brings a cause of action as a plaintiff in subsequent litigation. The rule broadly refers to "[a] party whose claim for relief" previously arose in litigation and further clarifies that "[f]or purposes of this Rule, party or parties shall include all named parties and those in privity." Va. Sup. Ct. R. 1:6. However, the rule points out that a "claim for relief" includes claims advanced "in a complaint, counterclaim, cross-claim or third-party pleading." Id. Of note, the majority of Virginia res judicata cases appears to involve litigation in which the plaintiff is the same party in both cases. See, e.g., Kellogg v. Green, 295 Va. 39, 42-43, 809 S.E.2d 631, 633 (2018); Lambert v. Javed, 273 Va. 307, 309, 641 S.E.2d 109, 110 (2007). Similarly, a majority of authorities merely provides the general requirement that the parties in the two cases are the same or in privity with one another. See, e.g., Lane v. Bayview Loan Servicing, LLC, 297 Va. 645, 654, 831 S.E.2d 709, 714 (2019); Raley v. Haider, 286 Va. 164, 170, 747 S.E.2d 812, 815 (2013). However, at least one non-binding authority opined that the same-parties element requires that "the plaintiff must be the same in both causes and the defendants must be the same in both causes." Russell v. Hartsoe, No. CL2006-8359, 2006 WL 3420840, at *2 (Fairfax Cty., Nov. 9, 2006).
Read holistically within the framework of the res judicata analysis, the Court finds that the specific posture of the parties is insignificant, as long as the same parties were engaged in the two cases. The Virginia Supreme Court, in reviewing the history of res judicata, recently articulated that the doctrine, stemming from its earliest formations, rests on the notion that "[w]hen a court has decided a party's claim regarding a particular 'subject-matter' on the merits, that decision is 'not now to be questioned in a subsequent controversy upon the same subject-matter between the same parties.'" Funny Guy, LLC v. Lecego, LLC, 293 Va. 135, 147, 795 S.E.2d 887, 893 (2017). (quoting Wash., Ohio & W. R. Co. v. Casenove, 83 Va. 744, 752, 3 S.E. 433, 438 (1887)). Put simply, res judicata primarily concerns the subject matter at issue between the parties rather than their particular role in the litigation. This is reinforced by the provisions in Rule 1:6 that account for counterclaims, cross claims, and extensions to those in privity with the named parties. In this Court's view, to deny a plea of res judicata because a defendant in the prior litigation is the plaintiff in the current litigation could improperly limit the scope of res judicata and shift the focus from the subject matter of the litigation to the posture of the parties. It would also be inconsistent with consideration of whether the claims in the subsequent litigation pertain to the "same conduct, transaction or occurrence."
Based on the above, the Court finds that the parties in the instant case and in the Lien Sale Case are the same.
3. The Prior Cause of Action Did Not Arise from the Same Transaction or Occurrence as the Current Complaint.
The City argues that all aspects of ACF's current claim—that "the liens paid during the sale of the property by ACF to S.L. Nusbaum are improper or, for some reason, recoverable by ACF"—are barred under the doctrine of res judicata because the parties litigated the same issues during the Lien Sale Case. The Court finds that although the Lien Sale Case and the current dispute have elements that are related, the two cases do not arise out of the same conduct, transaction, or occurrence.
The Virginia Supreme Court has provided guidance regarding how courts should determine whether two actions arise from the same transaction or occurrence:
For purposes of res judicata, deciding what constitutes a single transaction or occurrence under Rule 1:6 should be a practical analysis. The proper approach asks "whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage." No "single factor" is indispensable or determinative. The factors should instead be considered "pragmatically" with a view toward uncovering the true underlying dispute between the parties.Funny Guy, LLC v. Lecego, LLC, 293 Va. 135, 154-55, 795 S.E.2d 887, 897 (2017) (quoting Restatement (Second) of Judgments § 24(2)).
Here, the Court finds that a pragmatic analysis of the two cases does not support a finding that they arose from the same transaction or occurrence. While the genesis of the two claims is the same—demolition of the Historic Structure and the associated expenses—the facts related to timing and motivation in the two causes of action are distinct. Further, the parties' expectations do not support dismissal at this stage of the proceedings.
Regarding timing, the prior litigation, i.e., the Lien Sale Case, stems from the Settlement Agreement, which established the conditions to avoid demolition. Although there were multiple attempts to enjoin action by the City, the Historic Structure was ultimately demolished after ACF failed to comply with the terms of the Settlement Agreement. The City then initiated the Lien Sale Case to recover the Demolition Costs it assessed against ACF. That dispute was ultimately resolved via the City's voluntary dismissal after the parties entered into the Forbearance Agreement. The line of demarcation that most clearly indicates that the two cases do not stem from the same transaction or occurrence is formation of the Forbearance Agreement. The Court finds that the timing of the two cases—one arising before formation of the Forbearance Agreement and one after—suggests that there are two different disputes between the parties.
Concerning motivation, the claim for relief in the Lien Sale Case sought recovery of the Demolition Costs incurred by the City after ACF failed to comply with the Settlement Agreement and the City exercised its right to demolish the Historic Structure. That issue arguably was ultimately addressed by the Forbearance Agreement through a reservation of rights provision—at least from ACF's perspective. By contrast, the current claim for relief focuses on the City's right to assess the Demolition Costs against ACF despite the provisions of the Forbearance Agreement. The Court finds that the facts, as they pertain to ACF's motivation during each case, constitute different claims for relief that may warrant separate litigation.
Finally, and most significantly, the Court finds that the parties' expectations are highly relevant. Although the Forbearance Agreement came about during the Lien Sale Case, its contents reflect the parties' expectations regarding the uniquely different claim for relief in the instant case. Most notably, the agreement provides that ACF retains "the right to later contest the fact or amount of such Real Estate Taxes, Nuisance Abatement Levies, and other charges," which clearly include the Demolition Costs. Although this clause is not dispositive, it indicates that the parties recognized that there was an ongoing dispute regarding the Demolition Costs: despite resolution of the Lien Sale Case, there might be subsequent litigation regarding the "fact" and the "amount" of these costs and the propriety of the associated liens on the Property. Further, the City failed to present anything at the Hearing evidencing that it had objected to the express language of the Forbearance Agreement. See Bill Greever Corp. v. Tazewell Nat'l Bank, 256 Va. 250, 256, 504 S.E.2d 854, 858 (1998) (holding that a party can acquiesce to "claim-splitting"—and be precluded from claiming res judicata—"by failing to object to reservation language if the reservation clause clearly expresses the parties' intent to preserve specific claims or if the circumstances of the case make it clear that the defendant was aware that additional claims could be asserted against him later").
The Court finds unpersuasive the City's argument that the Forbearance Agreement addresses only the amounts of any liens—and not whether the City had the legal authority to impose the liens—as the agreement specifically references "the fact or amount" of charges, including the Demolition Costs.
The timing of the two suits, the parties' motivation in filing each case, and the parties' expectations as evidenced by the Forbearance Agreement weigh against a finding that the two cases arose from the same transaction or occurrence. Based on the above, the Court finds that the present case and the prior voluntarily dismissed litigation do not stem from the same transaction or occurrence. The Court therefore overrules the plea in bar on the basis of res judicata. C. ACF Has Not Adequately Alleged that the City Lacked the Authority to Assess the Demolition Costs Against ACF or Attach Associated Liens to the Property.
The Norfolk City Charter authorizes the City "[t]o compel the abatement and removal of all nuisances within the city . . . at the expense of the person or persons causing the same." Norfolk City Charter § 2(16) (emphasis added). The City also has the right to attach liens to associated real property in the amount of the expenses it incurs for nuisance abatement. Id. § 89. The City's authority to assess any demolition expenses and attach liens to the Property was not included or referenced in the Settlement Agreement, and ACF argues that the absence therein of an assessment-of-costs provision implicitly waived the City's right to assess the Demolition Costs against ACF.
As an initial matter, the Virginia Supreme Court has held that, generally, the "waiver of any [building code or zoning ordinance] provision . . . , or delegation to subordinate officials to waive any such provision, . . . must come by legislation; there can be no implicit waiver or implicit delegation of such authority." Dick Kelly Enters. v. City of Norfolk, 243 Va. 373, 382, 416 S.E.2d 680, 685 (1992). For example, in Dick Kelly, a property owner obtained from the City the necessary building permit and zoning clearance to build a motel. Id. at 375, 416 S.E.2d at 681. The owner instead used the constructed building as an apartment complex and, as a result, the City sought a permanent injunction enjoining such use. Id. at 375-76, 416 S.E.2d at 681-82. The owner claimed that when it submitted development plans to the City, the structure had too many units to be zoned as an apartment under the then-existing zoning ordinance, so "[a]t the City's suggestion, [he] modified the plans by 'whiting out' the word APARTMENT, and substituting the word MOTEL." Id. at 380, 416 S.E.2d at 684 (quoting the owner). The Court noted that even if this allegation were true, it would at most demonstrate that both the owner and the city's zoning personnel acted improperly, but it would not bind the municipality "to an incorrect or dishonest interpretation" of an ordinance. Id. at 382, 416 S.E.2d at 685. The Court ultimately held that—in the absence of an explicit legislative waiver—the authority granted by legislatively enacted building codes and zoning provisions cannot be implicitly waived. Id.
ACF concedes that the City was authorized to demolish the Historic Structure. ACF contends, however, that the City was not authorized under the Settlement Agreement to assess the Demolition Costs against ACF or attach liens to the Property and that section 15.2-906 of the Code of Virginia prohibits the City from imposing liens when it has not complied with the applicable statutory notice requirements.
While the Settlement Agreement addresses the City's right to demolish the Historic Structure should ACF not meet certain conditions, it is silent on the issue of assessing any associated demolition expenses. Further, ACF does not allege in the Complaint that the City relied solely on the Settlement Agreement to assess the Demolition Costs, and it is questionable whether ACF could do so in good faith. The Court finds that the City's April 21, 2017, email indicating that it intended to exercise its rights under the Settlement Agreement to demolish the Historic Structure is more accurately understood as support for the City's right to demolish the building. The email does not discuss the separate issue of the City's authority to assess the Demolition Costs, and similarly, ACF provides no factual support in the Complaint for its legal conclusion that the City lacked the authority to assess the Demolition Costs against ACF.
Even if ACF had adequately alleged that the City lacked authority to assess the Demolition Costs against ACF or attach liens to the Property, arguendo, section 15.2-906 of the Code of Virginia—on which ACF relies—is not relevant. Section 15.2-906 is an enabling statute that allows localities to enact related ordinances. The City does not need to rely on this section, however, as authority to assess nuisance abatement and removal costs exists independently in the Norfolk City Charter. Stated differently, the City's authority to assess the Demolition Costs against ACF exists separate from any Norfolk ordinance that might have been passed pursuant to section 15.2-906 and was not subject to an express legislative waiver.
In fact, the City made clear at the Hearing that it is not relying on section 15.2-906 to assess the Demolition Costs against ACF and to attach liens to the Property because the Norfolk City Charter provides the City with all necessary authority. (Tr. 15-16.)
The Court therefore sustains the demurrer on this ground but grants ACF leave to amend the Complaint to address this issue should it so choose.
Conclusion
Based on the above, the Court finds that ACF has failed to adequately allege that it has standing and that the City lacks the authority to assess the Demolition Costs and attach liens to the Property. The Court therefore SUSTAINS the demurrer on these bases, but grants ACF leave to amend the Complaint. Further, because the Court finds that the instant case and a prior related case requesting a judicial sale of the Property to pay outstanding taxes and resolve nuisance abatement liens do not arise from the same transaction or occurrence, it OVERRULES the plea in bar based on the doctrine of res judicata. Attached is an Order incorporating the Court's ruling.
Sincerely,
/s/_________
David W. Lannetti
Circuit Court Judge DWL/wmp
Enclosure VIRGINIA: IN THE CIRCUIT COURT FOR THE CITY OF NORFOLK AMERICAN CIGAR FACTORY, LLC, Plaintiff, v. CITY OF NORFOLK, Defendant. Civil Case No.: CL20-150 ORDER
Pursuant to the Court's August 14, 2020, letter opinion, which is incorporated herein, the Court rules as follows:
• The Court SUSTAINS the demurrer filed by Defendant, the City of Norfolk (the "City"), with respect to the following:
? Plaintiff, American Cigar Factory, LLC ("ACF"), failed to adequately allege that it has standing, although the Court grants ACF leave to amend its Amended Complaint;
? ACF failed to adequately allege that the City lacks the authority to assess demolition costs and attach liens to the Property, although the Court grants ACF leave to amend its Amended Complaint;
? ACF is not entitled to a jury trial as demanded;
? ACF failed to set forth the basis for its claim for attorney's fees as required by Rule 3:25(b) of the Rules of Supreme Court of Virginia; and
? ACF is precluded from challenging the City's right to demolish the Historic Structure based on the parties' stipulation.
• The Court OVERRULES the plea in bar filed by the City based on the doctrine of res judicata because the Court finds that the instant case and a prior related case requesting a judicial sale of the Property to pay outstanding
taxes and resolve nuisance abatement liens (Norfolk Circuit Court Case Number CL18-5835) do not arise from the same transaction or occurrence.
Endorsements are waived pursuant to Rule 1:13 of the Rules of Supreme Court of Virginia. Any objections shall be filed within fourteen days. The Clerk shall send a copy of this Order to K. Reed Mayo, Esquire, and Adam D. Melita, Esquire.
Entered: August 14, 2020
/s/_________
David W. Lannetti, Judge