Title: TransDulles Center Inc. v. Sharma
Citation: N/A
Docket Number: 951624
State: Virginia
Issuer: Virginia Supreme Court
Date: June 7, 1996

Present:  All the Justices 
 
 
TRANSDULLES CENTER, INC. 
 
OPINION BY JUSTICE A. CHRISTIAN COMPTON 
v.  Record No. 951624                      June 7, 1996 
 
DR. YASH SHARMA, T/A 
PANBAXY LABORATORIES, INC. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
 
J. Howe Brown, Jr., Judge 
 
 
In this dispute arising from a commercial lease, the sole 
question on appeal is whether the trial court correctly refused to 
apply the doctrine of collateral estoppel in favor of a party 
obtaining a default judgment in a prior action. 
 
In March 1993, appellant TransDulles Center, Inc., the landlord, 
obtained a default judgment in the Loudoun County General District 
Court in an unlawful detainer action against appellee, Dr. Yash 
Sharma, t/a Panbaxy Laboratories, Inc., the tenant.  Based on the 
terms of a five-year commercial lease, the landlord sought possession 
of the demised premises located in Sterling, Virginia, and sought 
recovery of rent delinquent for a three-month period before the tenant 
vacated the premises, attorney's fees, and costs. 
 
The tenant was served personally with the summons for unlawful 
detainer and failed to appear in the proceeding either in person or by 
counsel.  On the return date, the landlord presented testimonial 
evidence and exhibits in the tenant's absence. 
 
At the conclusion of the hearing, the district court entered 
judgment in favor of the landlord against the tenant for possession of 
the premises, and for rent due of $7,257.60 with interest, attorney's 
fees of $856.60, and costs of $18.00.  The judgment was not appealed 
 
 
 
 
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and became final.  The tenant satisfied the judgment eight months 
later. 
 
In July 1994, the landlord filed the present action by motion for 
judgment against the tenant in the circuit court below for breach of 
the lease, seeking recovery of rent that had accrued after the default 
judgment, attorney's fees, and costs.  The tenant appeared and denied 
the landlord was entitled to any further recovery under the lease. 
 
Following a bench trial, the circuit court applied the doctrine 
of collateral estoppel and ruled that the issue of the tenant's 
liability under the lease previously had been determined in the 
related district court proceeding.  Consequently, the circuit court 
entered judgment in April 1995 in favor of the landlord against the 
tenant for rent plus interest, attorney's fees, and costs. 
 
Subsequently, the circuit court granted the tenant's motion for 
reconsideration, vacated the April order, reversed its prior decision, 
and entered a June 1995 order in favor of the tenant dismissing the 
motion for judgment.  The court refused to apply collateral estoppel, 
ruling that "a default judgment does not actually litigate issues for 
the purposes of collateral estoppel."  The landlord appeals. 
 
Virginia law on collateral estoppel is clear.  The doctrine 
"precludes parties to a prior action and their privies from litigating 
in a subsequent action any factual issue that actually was litigated 
and was essential to a valid, final judgment in the prior action."  
Angstadt v. Atlantic Mut. Ins. Co., 249 Va. 444, 446, 457 S.E.2d 86, 
87 (1995); Bates v. Devers, 214 Va. 667, 671, 202 S.E.2d 917, 921 
 
 
 
 
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(1974). 
 
For the doctrine to apply, the parties to the two proceedings, or 
their privies, must be the same; the factual issue sought to be 
litigated actually must have been litigated in the prior action and 
must have been essential to the prior judgment; and the prior action 
must have resulted in a valid, final judgment against the party sought 
to be precluded in the present action.  Glasco v. Ballard, 249 Va. 61, 
64, 452 S.E.2d 854, 855 (1995).  Additionally, collateral estoppel in 
Virginia requires mutuality, that is, a party is generally prevented 
from invoking the preclusive force of a judgment unless that party 
would have been bound had the prior litigation of the issue reached 
the opposite result.  Norfolk & Western Ry. v. Bailey Lumber Co., 221 
Va. 638, 640, 272 S.E.2d 217, 218 (1980). 
 
In the present case, the tenant contends that a default judgment 
cannot be the basis for application of collateral estoppel in 
Virginia.  Relying on the Restatement (Second) of Judgments § 27 cmt. 
e. (1982), and federal decisions, including United States v. Ringley, 
750 F. Supp. 750 (W.D. Va. 1990), aff'd, 985 F.2d 185 (4th Cir. 1993), 
the tenant argues that "an issue must have been the subject of actual 
litigation for collateral estoppel to apply."  According to the 
tenant, nothing is actually litigated in a default judgment. 
 
The Ringley court, in a suit by the government to recover federal 
reclamation fees under a mining control and reclamation statute, 
refused to apply collateral estoppel when a default judgment had been 
rendered in a prior action.  Citing the foregoing Restatement comment, 
 
 
 
 
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the court said:  "A default judgment cannot be used for collateral 
estoppel purposes, because no issues are `actually litigated.'"  750 
F. Supp. at 759. 
 
We do not agree with the tenant's contention, nor do we agree 
with the view typified by the Restatement comment (in "the case of a 
judgment entered by . . . default, none of the issues is actually 
litigated").  Virginia law does not support a blanket exemption from 
the application of collateral estoppel in the case of a default 
judgment. 
 
Here, there is no dispute that most of the requirements for 
application of the doctrine have been established.  The parties in the 
two actions are the same.  The district court action resulted in a 
valid, final judgment against the tenant.  See Petrus v. Robbins, 196 
Va. 322, 329, 83 S.E.2d 408, 412 (1954) (estoppel may be successfully 
invoked upon final judgment of court not of record).  And, mutuality 
exists. 
 
The disputed questions are whether the tenant's personal 
liability was actually litigated in the district court proceeding and 
whether that factual issue was essential to the judgment in the prior 
proceeding.  We answer both queries in the affirmative. 
 
First, the tenant's personal liability for rent and other 
charges, including attorney's fees, under the lease actually was 
litigated in the prior action.  Testimonial and documentary evidence 
was presented ex parte in the district court hearing.  The circuit 
court record established that proof was presented in the district 
 
 
 
 
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court through a bookkeeper for the landlord and through the landlord's 
attorney, who presented the lease and other documents including an 
affidavit supporting the attorney's fees claimed.  We disagree with 
the tenant's argument that before an issue may be "actually litigated" 
in a court proceeding, the defendant must personally appear at the 
hearing and contest the matter.   Indeed, this Court has said that a 
final default judgment "imports absolute verity, and is as effectual 
and binding as if pronounced upon a trial upon the merits."  Neale v. 
Utz, 75 Va. 480, 488 (1881). 
 
Second, the tenant's personal liability was essential to the 
district court judgment.  That court could have merely awarded the 
landlord possession of the premises without imposing personal 
liability for rent and fees, but it did not.  Thus, the factual issue 
existing in the present proceeding, the tenant's liability for rent 
and fees, was a necessary part of the judgment in the prior 
proceeding. 
 
Finally, we reject the tenant's contention that Horton v. 
Morrison, 248 Va. 304, 448 S.E.2d 629 (1994), established a blanket 
exemption in Virginia from application of collateral estoppel in the 
case of a default judgment.  There, vehicles operated by Morrison and 
Horton collided.  Horton's minor son, Travis Lee Shaver, was a 
passenger in his mother's vehicle.  Both Horton and Shaver were 
injured, and each sued Morrison for damages, alleging Morrison 
negligently operated her vehicle. 
 
In response to Shaver's action, Morrison filed a third-party 
 
 
 
 
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motion for judgment against Horton, alleging that Horton negligently 
operated her vehicle and that she was liable to Morrison for all or 
part of any sum recovered by Shaver.  Horton failed to respond to the 
third-party complaint. 
 
Subsequently, the trial court sustained Morrison's motion for a 
default judgment against Horton.  On the same day, the court entered 
an order dismissing Shaver's action with prejudice because, according 
to the appellate record on file in the clerk's office of this Court, 
Shaver failed to comply with discovery orders.  Later, the trial court 
sustained Morrison's motion to dismiss Horton's action, concluding 
that Horton's action had been adjudicated when judgment was granted 
Morrison against Horton in the third-party action. 
 
Reversing the trial court, we held that Horton's action was not 
barred by the doctrine of collateral estoppel.  We noted the 
requirement that an issue must be the subject of actual litigation for 
collateral estoppel to apply.  Id. at 306, 448 S.E.2d at 631.  We did 
not create a blanket exemption, but merely said that no issues 
relating to Horton's negligence were actually litigated when the court 
entered a default judgment in the third-party action against Horton.  
Because Shaver's action against Morrison was dismissed with prejudice, 
Morrison could no longer be liable to Shaver.  Thus, Morrison's 
inchoate claim for contribution based upon Horton's alleged negligence 
became moot.  See Snead v. Bendigo, 240 Va. 399, 401, 397 S.E.2d 849, 
850 (1990). 
 
Consequently, we hold that the circuit court erred in refusing to 
 
 
 
 
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apply collateral estoppel in favor of the landlord under these 
circumstances, and the judgment below will be reversed.  We will 
reinstate the April 1995 judgment, and will enter final judgment here 
in favor of the landlord against the tenant for rent of $29,306, plus 
interest at the rate of nine per cent per annum from April 25, 1995, 
attorney's fees of $11,000, and costs of $2,500. 
 
Reversed and final judgment.