Opinion ID: 891657
Heading Depth: 4
Heading Rank: 2

Heading: Guardian's res judicata defense lacks merit.

Text: {59} Throughout most of this litigation Guardian has proceeded on a central theory that, because it was dismissed from Kirby's initial claim for wrongful denial of benefits, res judicata (claim preclusion) bars any claim for benefits that Kirby may ultimately seek to recover from Guardian. Our Court of Appeals in Kirby II agreed, viewing any attempt to enforce Guardian's obligations under the Policy as an action that Kirby could have originally brought directly against Guardian. 2008-NMCA-154, ¶ 13, 145 N.M. 264, 196 P.3d 965. The Kirby II court found support for this position in New Mexico case law holding that `a dismissal with prejudice is an adjudication on the merits for purposes of res judicata. ' Id. (quoting Hope Cmty. Ditch Ass'n v. N.M. State Eng'r, 2005-NMCA-002, ¶ 10, 136 N.M. 761, 105 P.3d 314) (emphasis added). {60} Both Guardian and the Court of Appeals interpret this proposition of law to mean that Guardian can never be liable for paying a money judgment on Kirby's claim for benefits, because the merits of Kirby's claim have been effectively decided in Guardian's favor. If this were true, it would make discussion of garnishment irrelevant, because Guardian would be shielded from any action that would cause it to pay under the Policy. In our view, however, Guardian misapplies the principles which animate res judicata theory. {61}  Res judicata bars not only claims that were raised in the prior proceeding, but also claims that could have been raised. Bank of Santa Fe v. Marcy Plaza Assocs., 2002-NMCA-014, ¶ 14, 131 N.M. 537, 40 P.3d 442 (2001).  Res judicata precludes a claim when there has been a full and fair opportunity to litigate issues arising out of that claim. Id. (citing Myers v. Olson, 100 N.M. 745, 747, 676 P.2d 822, 824 (1984)). The party asserting res judicata must satisfy the following four requirements: `(1) [t]he parties must be the same, (2) the cause of action must be the same, (3) there must have been a final decision in the first suit, and (4) the first decision must have been on the merits.' City of Sunland Park v. Macias, 2003-NMCA-098, ¶ 18, 134 N.M. 216, 75 P.3d 816 (quoting Bennett v. Kisluk, 112 N.M. 221, 225, 814 P.2d 89, 93 (1991)). Whether the elements of claim preclusion are satisfied is a legal question, which we review de novo. Blea v. Sandoval, 107 N.M. 554, 557, 761 P.2d 432, 435 (Ct.App.1988) (effect of prior judgment is a legal question that does not require a review of the facts). As we discuss below, res judicata is founded on principles of fairness and justice. {62} In the present action, res judicata is not a bar because the two claims against Guardian are not the same and could not have been brought in the same proceeding. Roybal v. Lujan de la Fuente, 2009-NMCA-114, ¶ 25, 147 N.M. 193, 218 P.3d 879 (2009). The initial dismissals of Guardian with prejudice were final and on the merits for res judicata purposes, and Guardian argues that the present action is a collateral attempt by Kirby to recover the same benefits that were disallowed in the earlier litigation. Indeed, Kirby is seeking to recover the same benefits from the Plan that she once sought to recover directly from Guardian. Yet, there is no escaping the fact that the present cause of action against Guardian is for enforcement of a writ of garnishmentnot for wrongful denial of benefits, or insurer bad faith, or any of the other causes of actions precluded by Guardian's initial dismissal. {63} Focusing on the subject matter giving rise to each claim, we conclude that the two claims arose from different transactions. Under Bank of Santa Fe, one factor required for a showing that two claims are the same is the relatedness of the facts in time, space, origin, or motivation. 2002-NMCA-014, ¶ 16, 131 N.M. 537, 40 P.3d 442 (internal quotation marks and citation omitted). Guardian's initial decision to deny benefits was based on its conclusion that Kirby was ineligible under the Policy, and Kirby's initial claims against Guardian (which were ultimately dismissed with prejudice) were motivated by that decision. In contrast, the present garnishment action was motivated by the Plan's failure to satisfy the default judgment award, which, as far as we can surmise from the record, was due to its lack of liquid assets. Thus, the subject matter giving rise to the two actions concern entirely distinct motivations, and are separated by nearly a decade. The garnishment action could not have been brought against Guardian at the same time as the claims that were dismissed, because the Plan was years away from the judgment that would establish its liability to Kirby. See id. ¶ 14. One is not required to join an enforcement claim against a garnishee in the underlying litigation to establish liability. {64} Even if we were to construe the present action as a collateral attempt at redress for wrongful denial of benefits, it would be based on a new transaction: Guardian's breach of the Policy by refusing to pay benefits once the district court determined, by default judgment, that Kirby was disabled. The Kirby-Federal court addressed this very point: At the time the state court determined that [Kirby] was entitled to long-term disability benefits under the Plan, Guardian became aware that [Kirby] was a beneficiary of the Plan and was entitled to recover benefits. Guardian's failure to pay benefits after the state court's determination that [Kirby] was a beneficiary under the terms of the Plan is a new cause of action because Guardian committed a new breach of the terms of the Plan. This new cause of action originated at a different time and based on a new set of facts: that [Kirby] has been judicially determined eligible for benefits and that the Plan and [Guardian] are ignoring the judgment ordering the payment of Plaintiff's benefits. Kirby-Federal, slip op. at 14. We agree with the federal district court's analysis on this point. As such, the present litigation is, for purposes of the same claim requirement of res judicata, twice removed from the judgments that actually have any preclusive effect. {65} Res judicata is a judicial creation ultimately intended to serve the interests of justice. To interpret and enforce our res judicata doctrine as Guardian urges would have the opposite result. In Computer One, Inc. v. Grisham & Lawless P.A., we observed that the underlying purpose of res judicata is to relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, ... prevent[] inconsistent decisions, [and to] encourage reliance on adjudication. 2008-NMSC-038, ¶ 31, 144 N.M. 424, 188 P.3d 1175 (internal quotation marks and citations omitted). Certainly, considerable judicial resources have been devoted to this dispute, and no doubt both sides have incurred substantial expense. Still, the interests of justice are hardly served by using res judicata to render a valid judgment meaninglessand to strip a disabled employee of her entitlement to benefitsespecially where the guidelines for pursuing an ERISA claim can be so obtuse to the average claimant. {66} For as long as Guardian has been asserting res judicata to bar Kirby's recovery, it has referred to its earlier dismissals as judicial determinations on the merits. Although the language of our cases may be read literally to mean that a dismissal with prejudice is  an adjudication on the merits, see Hope Cmty. Ditch Ass'n, 2005-NMCA-002, ¶ 10, 136 N.M. 761, 105 P.3d 314 (emphasis added), such a reading would be a distortion in this case. A dismissal with prejudice is an adjudication on the merits only to the extent that when a claim has been dismissed with prejudice, the fourth element of res judicata (a final valid judgment on the merits) will be presumed so as to bar a subsequent suit against the same defendant by the same plaintiff based on the same transaction. If this were otherwise, plaintiffs could simply ignore dismissals and file the same claim as many times as they wished, so long as the claim never progressed to a determination of the substantive issues. {67} The initial judgments that Guardian claims to have been on the merits did not include a judicial determination of Kirby's eligibility. The only judgment involving the issue of disability was the default judgment in Kirby's favor. Her attempt to enforce that judgment against Guardian, the party who contracted for the very responsibility to make disability payments to employees like Kirby, hardly offends the interests of justice that the doctrine of res judicata was designed to serve. {68} Finally, we acknowledge Guardian's point that garnishment will serve to impose a liability upon Guardian that Kirby could not have secured in a direct action, and that this liability is the result of proceedings to which Guardian was not party. In its brief to the Court of Appeals, Guardian argued that the district court ruling failed to treat it as an innocent third party, and that requiring Guardian to pay the default judgment violated its Due Process rights. However, the innocent third party concept simply means that if the garnishee is ordered to turn over the subject of garnishment, its liability will be no greater to the garnishor than it would otherwise be to the judgment debtor in a direct action. See Jemko, 106 N.M. at 54, 738 P.2d at 927. Our Opinion today has emphatically adhered to this principle. {69} Having made the initial decision (in good faith, we presume) to deny Kirby benefits, we do not fault Guardian for insisting that Kirby satisfy procedural and substantive requirements for a judicial review of that decision. Nevertheless, Guardian was well aware that, following its loss before the Court of Appeals in Kirby I, the district court would adjudicate the substance of Kirby's disability claim, and yet Guardian elected not to participate. Guardian should also have been aware of the possibility that Kirby might ultimately seek to enforce any favorable judgment against Guardian based upon Guardian's commitments under the Policy. See Pecor v. Nw. Nat'l Ins. Co., 869 F.Supp. 651, 653 n. 2 (E.D.Wis.1994) (When [entity] act[ing] in its capacity as plan administrator, it steps into the shoes of the Plan, and is subject to any court orders restraining or directing the Plan's actions.). {70} Although it was not required to attend the proceedings, as fiduciary and insurer Guardian had every incentive to participate in the hearing along with the Plan and justify its decision to deny benefits, especially since its res judicata defense would have had the same force in a subsequent enforcement action, regardless of the outcome. See Rule 1-008(E)(2) NMRA; see also Gregg v. Transp. Workers of Am. Int'l, 343 F.3d 833, 841 (6th Cir.2003) (ERISA fiduciary's duty of loyalty requires it to act as a prudent person, for the exclusive purpose of providing benefits to plan beneficiaries. (Internal quotation marks and citation omitted.)). By not attending, Guardian gave up its opportunity to contest Kirby's eligibility, relying thereafter entirely on res judicata to bar enforcement of the default judgment. {71} Once Kirby secured the writ of garnishment, all due process required was that Guardian be given notice and the opportunity to explain why it should not be held responsible for the default judgment. See Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950) (An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.); see also Moya v. DeBaca, 286 F.Supp. 606, 608 (D.N.M.1968) (stating judgment debtor is given notice and hearing at underlying proceeding, garnishee is given notice and hearing at garnishment proceeding). Guardian has had the opportunity to argue its res judicata defenseand has done so vigorouslyin this Court and both courts below. For the reasons previously set forth by the federal district court on this precise issue, as well as those discussed herein, we conclude that Guardian's wholesale reliance on res judicata was misguided.